Thursday, October 12, 2017

JOLTS Report And Too Many Job Openings!

Financial FAQs

The Labor Department reported today there were 6.1 million job openings in August in its JOLTS report, or Job Openings and Labor Turnover Survey, which was “little changed” from July, while hirings remained far behind at 5.430 million.  Corporations are flush with cash from record profits, so they need to put that cash to work by filling more of those job openings instead of asking for tax cuts they don’t need.

Graph: BLS.gov

In fact, the very large gap has been little changed for more than a few months. At 652,000, the current spread between openings and hirings is one of the very widest on record, and two months ago it was even higher—the spread was 1 million.

Yes, the gap between openings and hiring first opened up about 2-1/2 years ago signaling that employers are either not willing to offer high enough pay to fill empty positions and/or are having a hard time finding people with the right skills.

It’s worse than that. I maintain companies (corporations in particular) are using their record profits (up 7.4 percent in one year) to buy back their stock, instead; which enhances CEO pay.

I reported two weeks ago that Executive Pay Watch, in a report conducted by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), said last year CEOs were paid 335 times the average worker. The average production and non-supervisory worker earned $37,600 annually in 2016. “When adjusted for inflation, the average wage has remained stagnant for 50 years,” said the report. 

This brake on economic growth is mainly because corporations have been able to successfully resist their employees’ demands for higher wages due to corporations’ monopoly positions in many industries, and massive lobbies. Instead they’ve used most of those profits to buy back their stock, and so enhance their earnings. CEO pay spiked 19.6 percent last year, before inflation.

And next year may not be better for their employees. I also reported recently that “Pay raises for U.S. employees are not expected to improve next year, according to a survey released recently by global professional services company Aon, based on a survey of over 1,000 companies. Base pay is expected to rise 3 percent in 2018, up slightly from 2.9 percent in 2017. Spending on variable pay — incentives or bonuses — will be 12.5 percent of payroll, low levels not seen since 2013. This suggests a “pessimistic view of corporate performance in the coming year,” Ken Abosch, a strategy and development analyst at Aon, said in a statement.


How can corporations be pessimistic about their prospects with their record profits? They now have the largest profits as a percentage of Gross Domestic Income (a measure of total national income) in history.

So, it should be obvious corporations want more tax breaks, rather than pay their employees more, so the Aon survey is suspect. Corporations are really not interested in expanding their markets—at least in the U.S. of A. They are more interested in expanding the pocketbooks of their executives and stockholders, which is why GDP growth has been below the long term average.
As Nobel economist Joseph Stiglitz has been saying for years, “…it is not as if America’s large corporations were starved for cash; they are sitting on a couple of trillion dollars. And the lack of investment is not because profits, either before or after tax, are too low; after-tax corporate profits as a share of GDP have almost tripled in the last 30 years.”
Consumers power two-thirds of economic activity, so economic growth can’t improve unless the incomes of consumers grow, and that won’t happen as long as corporations hoard their profits rather than invest in their own employees future growth.

Harlan Green © 2017

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

Tuesday, October 10, 2017

A Poor Employment Report?

Popular Economics Weekly

What does it mean when 33,000 nonfarm payroll jobs were lost in September? Not much, when many of the losses came from the hurricanes that threw 1.5 million out of work, according to Marketwatch’s Jeff Bartash, and the rest of our economy is doing very well.

Wages jumped, also good news, but it was mainly because many of those lost jobs were in retail and restaurants which tend to pay the lowest incomes, hence the upward trend may be temporary.


The number of employed jumped by a huge 906,000 in the smaller household survey that determines the unemployment rate—in spite of the storms—while the number of job losses was smaller; at 331,000, hence the lower unemployment rate. So the rest of the U.S. is doing well.

And we now have a fast growing manufacturing sector that will grow even faster with the cleanup and rebuild from those disasters. Its growth is also helped by the cheaper dollar, which is boosting exports.

Econoday reports ISM's manufacturing index, already running well beyond strength in factory data out of Washington, is accelerating even further, to an index of 60.8 in September which is a 13-year best. Part of the gain in the index is tied to hurricanes and specifically deliveries times where slowing is translated as strength, as we said.

But it's more than that—maybe those higher exports are boosting GDP growth as well? Factory new orders rose 4.3 points in the month to 64.6 which is a 4-year high. And the hurricanes didn't slow down production which is at a very strong 62.2. Employment is a big standout in today's report, posting the first 60 score at 60.3 in 6-1/2 years.


The ‘other’ non-manufacturing service sector part of the economy is also growing robustly. The headline ISM non-manufacturing survey index jumped to 59.8 for the highest score in more than 3 years. New orders, that include strength for exports, jumped nearly 5 points to a robust 61.3 level that was last exceeded in April this year. Backlog orders jumped 2.5 points to 56.0 which helped employment rise 6 tenths to 56.8 with both these readings the strongest since May this year.

So the U.S. economy is firing on all cylinders, which is why the Fed is making louder noises re a December rate hike, in spite of nonexistent inflation. Why do so? Because it wants to gradually sell off its $4.5 billion hoard of government securities, which reverses the various QE programs that injected that much cash to boost growth.

So with less cash in circulation, money is no longer so cheap and market interest rates tend to rise. The Fed wants to be able to anticipate this trend.

But shouldn’t we be seeing more indications of higher growth than just one quarter of 3.1 percent GDP growth? That may happen if more federal funding than a measly $14.6 billion is available for Hurricane Harvey alone, when cleanup may cost $200 billion

Government-is-the-problem Texas Gov. Greg Abbott has changed his tune now that Texas is in need of federal funding. He said he thinks the state will need "far in excess" of $125 billion in federal relief dollars. Houston Rep. Sheila Jackson Lee called for a record-breaking $150 billion aid package on CNN recently.

Really, and who knows what Florida and Puerto Rico’s cleanup will cost? In fact, it will take such large amounts of federal spending to even sustain last quarter’s 3.1 percent growth rate, in my opinion.

Harlan Green © 2017

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

Thursday, October 5, 2017

It's Time to Build More Housing!

The Mortgage Corner

The National Association of Home Builders (NAHB) analysis of Census Construction Spending data shows that total private residential construction spending is soaring, as it rose to a seasonally adjusted annual rate (SAAR) of $520.9 billion in August, 0.5 percent up from downwardly revised July estimates.

But that’s not enough housing to satisfy current demand. There will be plenty of housing to replace, however, after this hurricane season has devastated so many U.S. states and territories.

Graph: NAHB.org

It was the fourth consecutive monthly increase after a dip in April, said the NAHB, Hurricane Harvey that made landfall late in August did not have significant impacts on construction spending in the same month, but will have a huge impact in months to come, as I said. The total private residential construction spending was 11.7 percent higher than a year ago. However, the blue line in the graph that represents residential construction spending still lags far behind commercial (red) and home improvement construction (gray lines).

The Midwest region is currently hurting the most from a housing shortage. Marketwatch’s Andrea Riquier reports the Home Affordability Index from real estate data provider Attom Data Solutions edged down to 100 in the third quarter, the lowest level since the third quarter of 2008, which was just as the financial crisis was taking hold.

Affordability is a problem because incomes haven’t risen as much as housing prices (especially in the Midwest). Attom notes that median home prices have risen 73 percent since bottoming out in 2012, while average weekly wages have increased only 13 percent in that time.

Why such a housing shortage so late in this recovery? For starters, the number of existing-homes listed for sale in 2017 to date is the lowest since 1999, according to the NAR. That’s in part because distressed sales volumes have fallen from more than 100,000 a month at the peak of the post crisis period, 2009-2012, to about 25,000 today, which means there aren’t many cheaply-priced homes left over from the housing crash.

And the construction industry because of a labor shortage has yet to catch up to soaring demand from a fully employed economy. More than half of the 3.5 million construction workers were laid off during the recession, and replacements are hard to find in this now fully employed economy.

Harlan Green © 2017

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

Wednesday, October 4, 2017

It's Time For 2018

Financial FAQs

We will need the 2018 elections now more than ever to vote out the greed and cowardice of those members of our national legislature who oppose all forms of gun control in the wake of the Las Vegas massacre of innocents.  It is those who have supported gun-rights groups that need to be replaced to protect Americans from such random acts of violence.

Gun-rights groups have allowed the killing of thousands of Americans in mass shootings over the past decade, including 521 mass shootings in just the last 477 days, according to New York Times columnist Frank Bruni.

That’s also because we have to vote out supporters of the largest terrorist organization in the U.S., the National Rifle Association, that opposes any controls on military-style weapons of mass destruction.

Yes, that’s right. Military weapons, such as the AK-47 developed by the Soviets because it was cheap to manufacture and easy to use, are responsible for more American deaths than ISIS; or any other terrorist organization that has killed maybe 15-20 Americans in all, yet we spend $billions trying to eliminate them, but nothing on eliminating American terrorism.

Instead those monies are donated to the candidates that support American anti-gun control organizations, such as the NRA. Ted Cruz and Marco Rubio were the top recipients of monies from organizations that oppose any form of gun control in 2016, reports Marketwatch — no surprise, since they both ran for president.

Cruz raked in $360,727 to lead the way, according to OpenSecrets.org. Just two years earlier, Cruz had collected $18,300 when he was the junior senator from Texas and lacked any significant influence in the Senate.

Third on the list of recipients of their largesse is House Speaker Paul Ryan, who said of the Las Vegas massacre, “this is not who we are”. Do we really believe him when he was the recipient of $171,977 from such organizations?

Who are we when President Trump, our elected President said, “You came through big for me, so I will come through big for you,” at the NRA’s latest convention?



That is in fact “who we are” at the moment, but not who we can become if we will take on such American terrorist organizations as the NRA that are responsible for the indiscriminate killing of so many women and children.

The big lie broadcast by gun-rights groups is that banning military-style weapons is banning the Second Amendment right to bear arms. No, that right is protected by the Second Amendment, but not the right to bear arms that slaughter so many innocents.

Harlan Green © 2017

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

Tuesday, October 3, 2017

Guns Kill People

Popular Economics Weekly

“Guns don’t kill people, people kill people” has been the credo of the NRA, gun lobby and most Republicans since the 1980s when gun manufacturers came up with automatic pistols, so that guns could kill more people.
59d3ca7e2d00002b003086fc

But Las Vegas shooter Stephen Paddock had no discernable mental illness, criminal record—or anger problems, according to his brothers. The NRA will try in vain to find a reason this inhuman act was committed when there is no reason, other than the fact that semi-automatic military-style weapons are legal in much of America and easily obtainable.

Only guns can kill that many people—including women and children. His brothers didn’t even know he was a gun nut who owned more than 30 weapons, and was able to smuggle in 10 suitcases containing 23 of those weapons without any Mandalay Bay staff even noticing such an oddity. Who needs that many suitcases in a hotel room?

The odds are that nothing will be done about this massacre, as long as President Trump and Republicans are in power. President Trump called it an act of evil, yet he won’t look at the evil in his own soul; the countless times he has lied and cheated to build his real estate empire that have been documented in many of the 3,500 lawsuits he has been involved in.

Australia had a similar gun problem until 36 people were killed in Port Arthur, and Prime Minister John Howard was able to pass strict gun control laws in 1996, the same year of the Port Arthur massacre. There hasn’t been a mass killing since then in Australia.

Australians apparently don’t believe owning an assault rifle is the ticket to manhood. Their gun control laws are maintained by weapon buyback programs and the requirement that gun owners must belong to a certified gun club.

How did our gun laws become so lax that military-style weapons are easy to obtain? It was a little known Supreme Court decision authored by its most extreme ideologue, Justice Antonin Scalia in the 1980s, which said that gun owners no longer must heed the constitutional Second Amendment stricture that gun owners are members of a well-regulated militia in order to bear arms.

Our founding fathers must have thought it would help to curb the random gun violence we have today.

Harlan Green © 2017

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

Friday, September 29, 2017

Who Needs a Tax Cut?


It turns out very few of us need a tax cut.  Marketwatch economist Rex Nutting calculates that those in the 60 percent middle-income brackets—from $32,000 to $140,000 per year—pay just an average 2.5 percent in income taxes.  It’s only the richest 0.1 to 1 percent income earners that pay more, and so want the huge tax cuts congress and the Trump administration are proposing.
 
Graph: Marketwatch

Their rationale? That it will boost GDP growth to 3 percent from the current 2 percent average since the end of the Great Recession. But guess what? Q2 GDP growth was already 3 percent in Q2 and just revised to 3.1 percent, the highest growth rate in 2 years. Businesses are already investing in expansion—business investment in structures rose a stronger 7 percent instead of 6.2 percent in the revision. So, why not pay down the huge budget deficits accumulated since then, instead of cutting tax revenues?
“A bill that cuts federal income taxes for middle-class families makes absolutely no sense, except as a sad way of camouflaging the real intent of the bill: Giving millions of dollars to the very wealthy, who happen to be the only people who are really benefiting from our uneven economic growth,” said Nutting.

Top this off with another record for corporate profits, up 7.4 percent in a year, and there is no reason to be cutting corporate taxes. They haven’t been using their profits for productive purposes, so what’s needed is for them to pay higher taxes so government can use that money to invest productively in the $2 trillion plus in outmoded infrastructure that badly needs replacement.

As a bonus, any such investments in new airports, power grids, better water treatment facilities (such as Detroit’s), alternative energies, roads, bridges—you name it—will increase labor productivity that has been cut in half since 2000.

And increasing labor productivity is the only real ticket to higher economic growth, and increasing the take-home pay for those middle-income wage earners.

Harlan Green © 2017


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

Wednesday, September 27, 2017

Tightening Credit = Bad Economic News (Revised)

Popular Economics Weekly

When is the next financial crisis? A Deutsche Bank study predicts it could be sooner than we know, as I said last week. Because the Federal Reserve reiterated its intent to begin to sell off the $4.5 trillion in excess reserves at its latest FOMC meeting at a time of record deficits built up to recover from the Great Recession.

“When looking for the next financial crisis, it’s hard to escape from the fact that we’re seemingly in the early stages of the ‘great unwind’ of global monetary stimulus at the same time as global debt remains at all-time highs following an increase over the past decade—at the government level at least—which has been unparalleled in peacetime history,” wrote Deutsche Bank strategists led by Jim Reid in an 88-page study entitled, “The Next Financial Crisis,” and cited by Marketwatch.

We haven’t fully recovered from the Great Recession, in other words, or the record deficit would have been paid down by now. So, this is the wrong time to be tightening credit. Instead, we should be raising taxes on those that have profited from the recovery—the top 1 percent that have garnered 96 percent of all income generated since the end of the Great Recession—as well as corporations with their record profits.

We really don’t need tax cuts, but pay raises for the majority of our workforce that hasn’t benefited from the recovery, if we want to boost economic growth; which is another way to pay down the deficit. Marketwatch reported on a recent employee survey that tells us exactly why personal incomes haven’t grown along with corporate profits that are the highest in history as a percentage of GDP.

“Pay raises for U.S. employees are not expected to improve next year, according to a survey released Monday by global professional services company Aon, based on a survey of over 1,000 companies. Base pay is expected to rise 3 percent in 2018, up slightly from 2.9 percent in 2017. Spending on variable pay — incentives or bonuses — will be 12.5 percent of payroll, low levels not seen since 2013. This suggests a “pessimistic view of corporate performance in the coming year,” Ken Abosch, a strategy and development analyst at Aon, said in a statement.

So where have all the profits gone that were generated since 2009? Executive Pay Watch, in a report conducted by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), said last year CEOs were paid 335 times the average worker. The average production and non-supervisory worker earned $37,600 annually in 2016. “When adjusted for inflation, the average wage has remained stagnant for 50 years,” the report said.

That’s not a formula that will pay down the $10 trillion accumulated since the end of the Great Recession. The conundrum is why so much debt was issued with so little economic growth, and the US at near full employment?

It’s mainly because corporations have been able to successfully resist their employees’ demands for higher wages due to their monopoly positions in many industries, and massive lobbies. Instead they’ve used most of those profits to buy back their stock, and so enhance their earnings. CEO pay spiked 19.6 percent last year, before inflation.

The median total compensation for CEOs at S&P 500 companies totaled $11.5 million last year, an 8.5percent increase from the previous year and the largest increase since 2013, according to a joint report by the Associated Press and the executive pay data firm Equilar released earlier this year. 

So, we could be seeing a growth slowdown next year, or worse, unless we can reverse the huge redistribution of wealth that has occurred since 2009. But that would mean raising the nationwide minimum wage from its current $7.25/hour, last set in the 1990s, for starters.

And, then stopping the Trump administration and Republican congress from cutting taxes of the already wealthy, and cutting spending that supports the poorest and elderly in the new tax and budget proposals.

Their most blatant attempt to hurt those in most need has been the repeated attempts to repeal Obamacare (another tax cut for them). Otherwise, all that stimulus has gone for naught, and we could see this Great Recession turn into another Great Depression.

Harlan Green © 2017

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

Thursday, September 21, 2017

Bad News for Workers = Worsening Economic News!

Popular Economics Weekly

Personal incomes have been increasing just 2.5 percent on average for several years. But that doesn't boost GDP growth enough to pay down the $10 trillion in worldwide debt that’s been issued since 2008 to get us out of the Great Recession.  We need at last 3 percent GDP growth, which is closer to the long term average; or raise taxes, which this administration won't do.

So where have all the profits gone that were generated since 2009 for corporate execs and their stockholders? Executive Pay Watch, in a report conducted by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). Last year, CEOs were paid 335 times the average worker. The average production and non-supervisory worker earned $37,600 annually in 2016. “When adjusted for inflation, the average wage has remained stagnant for 50 years,” the report said.

That’s not a formula that will pay down the $10 trillion accumulated since 2009 by central banks. The conundrum is why so much debt with so little economic growth, and the US at near full employment? With the Federal Reserve finally becoming serious about selling some of its $4.5 billion hoard of excess reserves, we could see a serious slump in economic growth coming.
“When looking for the next financial crisis, it’s hard to escape from the fact that we’re seemingly in the early stages of the ‘great unwind’ of global monetary stimulus at the same time as global debt remains at all-time highs following an increase over the past decade—at the government level at least—which has been unparalleled in peacetime history,” wrote Deutsche Bank strategists led by Jim Reid in an 88-page study entitled, “The Next Financial Crisis,” and cited by Marketwatch.
Why? Interest rates will finally begin to rise (i.e., less money in circulation), and less money also means credit tightening when weak household income growth has already stretched budgets.

A recent employer survey tells us exactly why personal incomes haven’t grown with corporate profits; still at record levels as a percentage of GDP. Corporations have been able to successfully resist their employees’ demands for higher wages. The top 1 percent have garnered 96 percent of all income generated since the Great Recession, since most of their profits have come from cheap money printed by the central banks. It has only enriched the banks and Wall Street, in other words.
Marketwatch reported on the Aon survey, recently: “Pay raises for U.S. employees are not expected to improve next year, according to a survey released Monday by global professional services company Aon, based on a survey of over 1,000 companies. Base pay is expected to rise 3 percent in 2018, up slightly from 2.9 percent in 2017. Spending on variable pay — incentives or bonuses — will be 12.5 percent of payroll, low levels not seen since 2013. This suggests a “pessimistic view of corporate performance in the coming year,” Ken Abosch, a strategy and development analyst at Aon, said in a statement.
Ah, but not for the CEOs of these companies that have used most of those profits to buy back their stock, and so enhance their earnings. CEO pay spiked 19.6 percent last year, before inflation.
The median total compensation for CEOs at S&P 500 companies totaled $11.5 million last year, an 8.5 percent increase from the previous year and the largest increase since 2013, according to a joint report by the Associated Press and the executive pay data firm Equilar released earlier this year. 

So, we could be seeing a growth slowdown next year, or worse, unless we can reverse the huge redistribution of wealth that has occurred since 2009. But that would mean raising the nationwide minimum wage from its current $7.25/hour, last set in the 1990's, for starters.

And, then stopping the Trump administration and Republican congress from cutting taxes of the already wealthy, and cutting spending that supports the poorest and elderly in the new tax and budget proposals.

Their most blatant attempt to increase their profits further, while hurting those in most need, has been the repeated attempts to repeal Obamacare (another tax cut for them). Otherwise, all that stimulus has gone for naught, and we could see this Great Recession turn into another Great Depression.

Harlan Green © 2017


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

Saturday, September 16, 2017

Investment, Factory Orders Rising After Hurricanes

Popular Economics Weekly

The US Dollar’s decline against foreign currencies, mostly due to geopolitical worries such as N. Korea’s nuclear intentions, is already helping the manufacturing sector with a sharp rise in factory orders. This will be aided by Hurricanes Harvey and Irma’s boost in capital expenditures as major infrastructure upgrades will be necessary.

Any infrastructure improvements—such as roads, bridges, the power grid, water and sewer plants—enhances efficiency and job formation. It seems force majeure, or unavoidable catastrophes, are the only way our political parties seem to be able to agree on doing anything that boosts growth!


The factory sector has been slowly moving higher this year. Strength in aircraft has been a big plus but there are huge swings in monthly data. So the above graph excludes civilian aircraft and tracks both orders and shipments for all other manufactured goods. The story is one of recovery with growth moving to the solid 5 to 6 percent range after a long run of contraction tied to the 2014 collapse in oil.

The best factory news has been coming from the most critical area: core capital goods where strength reflects rising investment in future production. Orders have been strong two of the last three reports, up 1.0 percent in July and 0.8 percent in May. This will boost shipments over the next few months which are already on the rise, up 1.2 percent after June's 0.6 percent gain. An upswing in capital goods is auspicious for the factory sector which itself is considered a leading indicator for the economy as a whole.

Graph: Econoday

For all the damage they cause, these hurricanes will spur a gigantic rebuilding effort—maybe upwards of $200 billion in overall spending just to replace what was destroyed. That is 1/5 of President Trump’s original infrastructure proposal.

We have to start somewhere when our government can’t otherwise agree to rebuild our badly aging plants and equipment. The latest Job Openings and Labor Turnover Survey (JOLTS) report out today said there are 6.173 million job openings, and 5.5 million hires in August.

It is possible small business hires will pick up, as the National Federation of Independent Businesses Optimism Index rose 0.1 points in August to 105.3, matching the highest level since the 12-year high set in January. August's optimism reflected increases in the proportion of small business owners planning capital expenditures and anticipating higher sales. Capital expenditures plans in the next 3 to 6 months reached their highest level since 2006, the NFIB said.

Now is the best time for these businesses (80 percent of hires are by small businesses) will try a little harder to hire more of those 6 million that are actually available and want to return to work.

Harlan Green © 2017

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

Sunday, September 10, 2017

THE ART OF THE SCAM

Popular Economics Weekly

Did you have that queasy feeling; the ‘sick to your stomach’ feeling, when it was announced that Donald Trump was elected President of the United States?  I did. How could someone so obviously unqualified to be president of anything have done it?

It’s becoming more obvious by the day why that happened; why such a man could be elected our President; someone with a sordid business history who blatantly ignores facts, breaks the laws of the land, and ignores our constitution.

That’s because more has just been revealed about the automated Russian cyberattacks that detail how it was done.   These revelations conclude that Donald Trump’s election was a giant scam propagated by the Trump campaign with the aid of Russian intelligence and their propaganda machine.
The latest evidence points to son-in-law Jared Kushner as the main colluder, due to his supervision of the Trump campaign’s digital voter operation. McClatchy News first revealed the link between Kushner and Russia’s cyberwar.
“Congressional and Justice Department investigators are focusing on whether Trump’s campaign pointed Russian cyber operatives to certain voting jurisdictions in key states – areas where Trump’s digital team and Republican operatives were spotting unexpected weakness in voter support for Hillary Clinton,” according to McClatchy.
“By Election Day,” reported McClatchy in July, “an automated Kremlin cyberattack of unprecedented scale and sophistication had delivered critical and phony news about the Democratic presidential nominee to the Twitter and Facebook accounts of millions of voters. Some investigators suspect the Russians targeted voters in swing states, even in key precincts.”
Without Russian aid, Trump could never have vanquished his Republican opponents, as well. These cyberattacks were in play during the primary campaign against Republicans. Throughout the Republican primary elections in early 2016, Russia sent armies of bots carrying pro-Trump messages and deployed human “trolls” to comment in his favor on Internet stories and in social media, former FBI special agent Clint Watts told Congress weeks ago, according to McClatchy.

Perhaps this is why Facebook has finally admitted it sold at least $100,000 in paid advertising to Russian operatives in 2015-16 so that they could gain access to millions of Facebook subscribers.
Donald Trump perfected the Art of the Scam when building his business empire. Perhaps the best example was the Trump University scam—a university in name only—which he was forced to settle for $25 million last November shortly after winning the election. Presiding Judge Gonzalo Curiel had deemed it a criminal organization under RICO, and Trump was scheduled to testify at his trial when he settled with the thousands that  had been scammed, while raking in a reputed $5 million profit from unsuspecting students.

The best evidence that Trump knew he could not become President without Russia’s collusion, are his consequent actions in voicing support for every one of Putin’s policy initiatives—from lifting the Ukraine sanctions, repealing the Sergei Magnitsky Act, and even the breakup of NATO.

He has to be deathly afraid of what Putin could reveal of Trump’s sordid past and details of their collusion. Putin is blackmailing Trump, in a word. McClatchy News has provided the latest evidence of that collusion from confidential sources that the congressional intelligence committees and Special Investigator Robert Mueller are investigating.

So why does the Republican Party continue to support him?

Harlan Green © 2017


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

Thursday, September 7, 2017

A Decent Employment Report

Financial FAQs

The Bureau of Labor Statistics reported that 156,000 additional nonfarm payroll jobs were created in August, which was less than expected, but will be enough to keep markets happy. And the unemployment rate edged up to 4.4 percent from July’s 4.3 percent as more workers began looking for work (77,000), but weren’t yet absorbed into the workforce. Almost all the job gains occurred in manufacturing, construction, professional and technical services, health care, and mining.


A major positive in the report is a 36,000 surge in manufacturing payrolls that includes a 10,000 upward revision to July to a 26,000 increase and a 9,000 upgrade to June to a gain of 21,000. It’s a positive sign because manufacturing jobs pay higher wages.

Construction payrolls are also solid, up 28,000 in August following a 3,000 decline in July, which mirrors the surging housing market. The new-home construction rate is now above 1 million annual units, which helps replenish depleted housing stocks (and helps to slow price growth).

But retail hiring has declined for six straight months as retail stores continue to close. This is while Amazon has announced plans to hire an additional 50,000 employees to work in its distribution centers.

This was a good jobs report, in other words, and suggests the ongoing recovery, now in its eighth year, shows no signs of weakening. Wages aren’t rising any faster than 2.5 percent; which is a mystery because manufacturing and construction jobs pay higher wages. Is that because there are still 5.6 million part time workers that would rather work fulltime? They earn less, so that may be what is holding down wage growth.



But real (inflation adjusted) Disposable Income is rising again after going negative in 2016.  Disposable income measures income from rents and the self-employed, as well as wages, which may give a boost to employees’ wages. It is the major reason consumer spending rose 3.3 percent in second quarter’s GDP report, and probably will boost third quarter growth as well. Wages and salaries have now risen 0.5 percent for two consecutive months.

The combination of good unemployment and rising incomes are boosting consumer confidence. The Conference Board reported on Tuesday that its consumer confidence index is now at 122.9, which is its highest value since December 2000.
“Consumer confidence increased in August following a moderate improvement in July,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ more buoyant assessment of present-day conditions was the primary driver of the boost in confidence, with the Present Situation Index continuing to hover at a 16-year high (July 2001, 151.3). Consumers’ short-term expectations were relatively flat, though still optimistic, suggesting that they do not anticipate an acceleration in the pace of economic activity in the months ahead.”
Manufacturing payrolls are surging in part because factory orders are rising again. Factory orders fell in July 3.3 percent because of a drop in aircraft orders, but there was a 6 tenths upward revision to core capital goods orders (nondefense ex-air) to a 1.0 percent gain and a 2 tenths upward revision to core shipments, now at 1.2 percent. These numbers point to accelerating strength for third-quarter business investment, which along with consumer spending are the main drivers of GDP growth.

Another boost to Q3 growth will be the recovery efforts for Hurricane Harvey. Damage estimates range up to $100 billion, and governments (as well as insurance) companies will be spending most of that money.  This is what governments need to do, even if the U.S. congress can’t pass a substantial infrastructure bill this year.

And what about the estimated 6 million damaged autos that will be replaced? That give’s another boost to the manufacturing sector, and Q3 economic growth!

Harlan Green © 2017

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

Thursday, August 31, 2017

Corporate Taxes Are Too Low

Financial FAQs

As congress now pivots to the debate on tax reform—when and if they can agree on raising the debt ceiling—why is a lower corporate tax rate part of the proposal? The federal budget deficit can’t decline unless congress raises tax rates to 1970's level, when budget deficits were comparatively minuscule.

The total budget deficit in 1970 was $12.7 billion, or just 0.3 percent of GDP, vs. $580 billion and 3 percent today. The 1970 effective corporate tax rate on capital income was 42.0 percent, vs. 35 percent today. So any corporate tax cut will only grow the deficit, without benefiting consumers and job seekers.

This is while corporate profits rose $73 billion in the revised Q2 GDP growth rate; which has risen to 3 percent from Q1’s 2.1 percent rate. It was a good GDP number, as consumer spending increased 3.3 percent and business investment increased almost 9 percent with almost no inflation.


The proposed House bill wants to reduce the maximum corporate tax rate from 35 to 20 percent. But why, when as I said in a prior column, corporations already pay much less than the actual tax rate? Maybe this will change, but corporations have been using their record profits to buy back stock and enhance executive pay, rather than hire more workers, so that there are now 6 million job vacancies, according to the Commerce Department’s JOLTS report.

They have re-purchased so much stock that a Credit Suisse report released in March titled “The Incredible Shrinking Universe of U.S. Stocks,” says between 1996 and 2016, the number of publicly-listed stocks in the U.S. fell by roughly 50 percent — from more than 7,300 to fewer than 3,600 — while rising about 50 percent in other developed nations.

Not all of it is from stock buybacks, as there have been a large number of corporations either merging, or taken private in buyouts so that the number of listed companies has also declined almost 50 percent since 1996.

Why do corporations and their Republican lobbyists keep pushing for lower taxes? They say it will create more jobs. But, alas, that isn’t shown by the record. An excellent New York Times Op-ed by Sarah Anderson at the Institute for Policy Studies points out that many corporations create very few jobs with those profits.

She reports on 92 public-held American corporations between 2008-15 that pay less than 20 percent in taxes. They had a median job growth rate of 1 percent vs. 6 percent for all private sector corporations during that time.

And 48 of those companies actually cut 438,000 jobs, while their chief executives’ pay last year averaged nearly $15 million, compared with the $13 million average for all S&P 500 companies.

Then why not have congress push corporations to fill more of the 6 million job openings, which could expand their markets, increase profits and help to pay down our enormous public debt, rather than continue to fill their own pockets?

Harlan Green © 2017

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

Wednesday, August 30, 2017

Cheaper Dollar Will Help GDP Growth

Popular Economics Weekly

The U.S. Dollar foreign exchange value is falling due to a number of factors. And it's already showing benefits, as Q2 GDP growth was just revised upward to 3 percent, and economists predict third quarter growth will also approach 3 percent.

That's because a cheaper dollar boosts  the export of manufactured goods, as our goods will now be less expensive overseas, which adds to GDP growth. It will hurt imports, which become more expensive (even imported oil), but that’s a good thing because domestically produced consumer goods become cheaper, boosting domestic jobs.

The euro now costs $1.20, when it was almost 1:1 to the Dollar last fall. Is the Dollar decline due to the latest North Korean missile launch, or Hurricane Harvey? Time will tell, but the U.S. factory sector is now doing very well because of the cheaper dollar.


Durable goods orders of goods that last more than 3 years, such as autos and appliances, are booming since the Dollar’s decline and this will help GDP growth. The boost to exports is a plus for our balance of payments problem and the budget deficit.

Graph: Econoday

Consumer confidence to date isn’t being hurt by either North Korean saber rattling or the Charlotte riots, according to the Conference Board. The Conference Board Consumer Confidence Index®, which had increased in July, improved further in August. The Index now stands at 122.9 (1985=100), up from 120.0 in July, said their press release. The Present Situation Index increased from 145.4 to 151.2, while the Expectations Index rose marginally from 103.0 last month to 104.0.
“Consumer confidence increased in August following a moderate improvement in July,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ more buoyant assessment of present-day conditions was the primary driver of the boost in confidence, with the Present Situation Index continuing to hover at a 16-year high (July 2001, 151.3). Consumers’ short-term expectations were relatively flat, though still optimistic, suggesting that they do not anticipate acceleration in the pace of economic activity in the months ahead.”
All in all, a continuation in the dollar’s decline will also be beneficial to manufacturing jobs, which tend to pay higher wages. And higher wages are needed to boost worker productivity and get us out of the slow growth syndrome the U.S. has been living through since the end of the Great Recession.

Harlan Green © 2017

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

Thursday, August 24, 2017

Where Are the New Homes?

There just aren’t enough home being built to satisfy surging demand.  The drop in new-home sales total for July to 571,000 units is misleading; mainly because May and June totals were revised upward. That’s because the Census Bureau estimate comes from a very small survey sample with plus or minus 11 percent possible deviation, hence the sometimes large revisions. For instance, this is 9.4 percent (±12.9 percent) below the revised June rate of 630,000 and is 8.9 percent (±15.4 percent) below the July 2016 estimate of 627,000.

And the available supply of new homes for sale rose sharply, up 4,000 to 276,000 new homes on the market. Relative to sales, supply moved from 5.2 months to 5.8 months, which is nearly at the 6-month mark, widely considered to be balanced for new homes, says Econoday.
So with more new homes coming on line, sales could jump again.


This is while existing-home sales ran at a seasonally adjusted annual rate of 5.44 million, the National Association of Realtors said today. That was down 1.3 percent from a downwardly-revised June pace but 2.1 percent higher than a year ago. That’s because there aren’t enough home for sale, folks, with available supply down to 4.2 month. It was the lowest since last August.

“Homes are selling fast,” NAR Chief Economist Lawrence Yun said. In July, that strong demand meant listings went into contract in under 30 days. It also pushed prices higher. The median sales price in July was $258,300, a 6.2 percent increase compared to a year ago.

All will depend on more homes being built, and housing starts are trending higher. Although nationwide housing starts fell 4.8 percent in July to a seasonally adjusted annual rate of 1.16 million units, according to data from the U.S. Department of Housing and Urban Development and the Commerce Department, year-to-date, single-family starts are 8.6 percent above their level over the same period last year.

Homebuilder’s optimism is also holding up. Builder confidence in the market for newly-built single-family homes rose four points in August to a level of 68 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), said the NAHB.
 “The fact that builder confidence has returned to the healthy levels we saw this spring is consistent with our forecast for a gradual strengthening in the housing market,” said NAHB Chief Economist Robert Dietz. “GDP growth improved in the second quarter, which helped sustain housing demand. However, builders continue to face supply-side challenges, such as lot and labor shortages and rising building material costs.”
Graph: Econoday

The number of housing permits for future construction is the main factor determining future new-home inventories. And housing permits have been a thorn in the economy's side all year, bouncing up occasionally but diving more times than not, reports Econoday. Permits were a negative in the week, falling to a 1.223 million annualized rate for a 4.1 percent monthly decline.

Permits are a leading indicator for construction and the results are pointing to further flattening for residential spending. Yet there are more pluses than minuses in housing, evident in the yearly rate for permits, which, is up 4.1 percent, as much as July was down.

So, the overall housing market remains strong. And guess what, interest rates plunged again, so that the 30-year conforming fixed rate is again at 3.50 percent for a 1 point origination fee. With rates this low, and the Fed now saying it may hold off on another rate hike, we could see these rates hold for the rest of this year.

Where are the new homes? Regionally, new home sales increased 6.2 percent in the Midwest. Sales fell 4.1 percent in the South, 21.3 percent in the West and 23.8 percent in the Northeast.  The number of permits issued rose 19.2 percent in the Northeast, fell 1.4 percent in the South, 7.9 percent in the West, and 17.4 percent in the Midwest.

Harlan Green © 2017


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

Tuesday, August 22, 2017

Where Are Badly Needed Infrastructure Improvements?

Financial FAQs

It’s really incredible that Republican leaders of both the House and Senate can’t see that Trump’s $1 trillion infrastructure proposal would boost growth. It's the one item that would stir us out of the 2 percent growth doldrums.

The all-Republican congress and White House are making a serious mistake in letting politics and ideology get in the way of economic growth. Does anyone seriously believe their attempts to repeal Obamacare would work with so many of their red state constituents dependent on Medicare?

And now they want to tackle a regressive tax reform plan in which, according to the Tax Policy Center, 76.1 percent of the net tax cuts would flow to the richest 1 percent of households in 2017.  And by 2025, essentially all of the net tax cuts — 99.6 percent — would go to the top 1 percent. That doesn’t even pass the smell test.

However, we have to remember Republicans have always hated the idea of another New Deal, because it would bust their bubble that government investment can’t work; because it did work to build our highways, Internet, shots to the Moon, educational system, a cleaner (and more productive) environment, and so forth.

President Trump’s infrastructure proposal would work, even if partially funded with $40 billion from Saudi Arabia and its allies. But Trump is now toxic with the business community after his Charlottesville racist fiasco. His 34 percent voter base, (or maybe now 24 percent in more recent polling) that continue to support him, even if he shoots someone on Fifth Avenue, won’t keep him in power, as he believes.
But higher economic growth would make him more popular. Marketwatch’s Jeff Bartash has highlighted what it would take to take US out of the doldrums. “Lackluster business investment is one of the chief reasons the U.S. continues to bob along at about 2 percent annual growth, less than two-thirds the historic average. Investment is what spurs new inventions, makes it easier for workers to do their jobs and allows the economy to expand at a faster rate.”
A souped-up economy in turn generates higher profits, fatter dividend payments and bigger paychecks for workers, says Bartash. “Whatever hope businesses may have had earlier in the year, however, has been clouded by the failure of a flailing Trump White House to push through tax cuts, more spending on public works and other measures to aid big and small companies alike.”
It’s so foolish.  President Trump and Republicans won’t accomplish anything, if Trump can’t renounce his neo-nazis, white nationalist and Ku Klux Klan supports.

Harlan Green © 2017


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

Saturday, August 19, 2017

Will There Be Tax Reform?

Popular Economics Weekly

After Republicans’ failure to repeal Obamacare, they will now attempt to pass a budget, and tax reform plan. But the $1 trillion in spending cuts (mainly from Medicare) they hoped with the repeal of Obamacare, which would go into tax cuts for corporate, capital gains and upper income personal tax brackets, probably won’t happen.

And that could be a good thing, if it focuses solely on enriching a few. Corporate taxes aren’t too high with all the loopholes that bring down the effective corporate tax rate to 13 percent, rather than the nominal 23.8 percent rate, while the maximum personal tax rate was 92 percent in the 1950s under President Eisenhower when the U.S. was building our modern productivity- enhancing infrastructure, which badly needs an upgrade. And corporations already have record corporate profits as a percentage of GDP, which most aren’t using to increase capital expenditures and so productivity (and growth).

Any attempt at tax reform will run into the moderates in a split Republican Party that want to maintain Medicare and other social programs that aid those in the poorest overwhelmingly Republican red states. So the moderates will stymie efforts to cut spending in social programs, which means that Repubs can’t cut taxes without creating a very large budget deficit—even larger than it is now.

Tax cuts matched with spending cuts have only increased the budget deficit under the various Republican plans. Whereas the Obama administration drastically reduced annual budget deficits while rescinding most of the Bush tax cuts. The formula worked. This raised most taxes back to Clinton administration levels, while maintaining the various social programs that benefited the poorest and disabled.

Corporations are not investing what they should and could because they prefer using financial engineering to finagle stock prices to enrich investors (and executives) while squeezing employees’ incomes that hurts their producitivity. 

Whereas public sector investment is so important when it gets spent on productivity-enhancing infrastructure upgrades. It becomes revenue neutral because it stimulates higher growth, just as it did in the last 4 years of the Clinton administration, which yielded actual budget surpluses.

Republicans’ sole focus on spending and tax cuts is a mistake. The CBPP reports the House GOP agenda issued in 2016 a tax reform plan, which they haven’t amended, and that a 2016 Tax Policy Center (TPC) analysis shows would overwhelmingly benefit the highest-income households.  Under the plan, 76.1 percent of the net tax cuts would flow to the richest 1 percent of households in 2017.  And by 2025, essentially all of the net tax cuts — 99.6 percent — would go to the top 1 percent.


The figures are similarly striking for households with incomes over $1 million, who would reap 71.2 percent of the tax cuts in 2017 and 96.5 percent of the net tax cuts in 2025.[1]  The plan is actually more regressive and more heavily tilted toward those at the top of the income scale than past GOP tax cut proposals.

On the individual tax side, the new tax rate structure would have three brackets of 12 percent, 25 percent, and a top rate of 33 percent.  High-income people’s pass-through income — business income that’s claimed on individual tax returns — would be taxed at a special lower top rate of 25 percent. 

Evidence of the damage from corporations’ financial engineering (instead of productivity-enhancing investments) is the collapse in the number of listed companies. In a Credit Suisse report released in March titled “The Incredible Shrinking Universe of U.S. Stocks,” there were 7,322 in 1996; today there are 3,671. It is important not to confuse this with a shrinking of the stock market: the value of listed firms has risen from 105 percent of GDP in 1996 to 136 percent now. But a smaller number of older, bigger firms dominate bourses.

Consequently between 1996 and 2016, the number of publicly-listed stocks in the U.S. fell by roughly 50 percent — from more than 7,300 to fewer than 3,600 — while rising by about 50 percent in other developed nations, said Credit Suisse. 

A spike in M&A activity also accounted for the rapid acceleration in delistings (and fewer stocks) as well. Private equity has been a dominant force. In 1980, PE deal volume slightly exceeded $1 billion. By 1996, that number had reached $80 billion. And today, it sits at a staggering $825 billion.

Though it’s an old (but time tested) proverb, when private enterprise won’t step up to save economic growth, government has to fill the void.  The best tax reform is that which invests in the future of American productivity, rather than in Wall Street's financial engineering.

Harlan Green © 2017

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

Thursday, August 17, 2017

Retail Sales Back, But Not Consumers

The Mortgage Corner

It turns out consumers decided to shop again in July, as retail sales surged in all categories. This includes online sales these days, as retailers adapt to the new reality that one large store size doesn’t fit all. But it may be a one-time surge, as wages are barely rising above inflation, while major brick and mortar stores are disappearing, and factory discount outlets thrive.

Nonstore retailers, vehicle dealers, building materials stores lead the report -- all major categories. Secondary readings are all strong: up 0.5 percent ex-autos, up 0.5 percent ex-autos ex-gas, and up 0.6 percent for the control group. Annual sales had risen above 5 percent in January, then declined until this month. So it’s hard to know if consumers in fact feel more prosperous.


Target, for instance, is opening more than 100 ‘small-store’ outlets near universities and colleges that was announced at their second quarter earnings call. Target Chief Executive Brian Cornell said the retailer would be nearly doubling the number of small-format stores it has this year, with the ultimate goal of having more than 100 open for business over a three-year period. The plan is to have 30 in 2017, said Chief Operating Officer John Mulligan, with nine opening in July and four opening in the first quarter.
“While we’ve only been open a few weeks, our July openers have been particularly strong out of the gate and as Brian highlighted, the guest response has been phenomenal,” Mulligan said on the Wednesday call, according to a FactSet transcript. “For the seven smallest format stores that have been open for more than a year, we’re continuing to see sales productivity more than double the company average and these stores have been delivering high-single-digit comp increases so far in 2017.”
We reported earlier that most households aren’t earning enough income to do more than pay their bills, such is the record income inequality. The monthly reading for this measure did finally show some life in the prior week's employment report with an unadjusted 0.3 percent gain, but it will take a continued run of strength to level out the 2-year trend line which remains in a deep downslope, said Econoday.

So we remain doubtful this retail surge can continue given all the actual brick and mortar stores closed or about to close. Brokerage firm Credit Suisse said in a research report released earlier this month that it's possible more than 8,600 brick-and-mortar stores will close their doors in 2017.

For comparison, the report says 2,056 stores closed down in 2016 and 5,077 were shuttered in 2015. The worst year on record is 2008, when 6,163 stores shut down, due to onset of the Great Recession.

Why? Is it only Amazon online shopping? No, because consumer incomes are barely rising, as I said, they look for discounts everywhere, and brick and mortar stores with their higher overhead, can’t cut prices as much, and can’t offer the variety that Amazon offers.

Now we hear that Amazon also wants to compete on the ground. What next? It will probably be more like an Apple store that samples its services and directs customers to its online warehouses, also springing up everywhere. Who can match that kind of cost-cutting when workers’ stagnant wages and salaries mean they will continue to discount shop for bargains.

Guess what is missing that would boost economic growth? Infrastructure spending, and now that Big Business has walked away from President Trump’s business councils, and Prez Trump is dissing Senate Republican leaders, good luck on getting anything done!

Harlan Green © 2017

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

Wednesday, August 16, 2017

Why the Greater Lawlessness?


We knew as far back as Nixon’s Watergate that the Republican party harbors a lawless tendency when it suits them. Why else would President Reagan engineer the illicit Iran contra arms deal with the Ayatollah Khomeini, or, President GW Bush invade Iraq when UN inspectors already knew Saddam Hussein had destroyed his weapons of mass destruction a decade earlier?

The lawlessness of Republicans’ hunger for power has now reached such a point that they have selected and continue to support a president who has lied and cheated his whole adult life; from Trump Casinos to Trump Towers, from stiffing bankers and his workers to cooking the books. This has been documented in many of the 3,500 plus lawsuits Trump has been involved in, and the reason he settled the Trump University lawsuits, one of which alleged he ran a fraudulent enterprise under RICO, the Racketeer Influenced and Corrupt Organizations Act.

The sins of Hillary and Bill Clinton pale, yet Republicans impeached Bill for lying about a sexual encounter and continue to hound Hillary over lost emails. So why aren’t they impeaching Donald Trump who hasn’t divested himself of his assets to avoid conflicts of interest and continues to profit and even solicit favors from foreign governments in direct violation of the constitution?

President Trump's current 34 percent Gallup popularity rating is testimony that his support is now only restricted to those that would support him, even if, ““I could stand in the middle of Fifth Avenue and shoot somebody, and I wouldn’t lose any voters,” said at a January 2016 Iowa campaign rally.

And now we have President Trump condoning the lawlessness of his neo-nazi and white nationalist supporters holding a torchlight parade in Charlottesville, Virginia, Jefferson’s hometown.

CNN commentator David Gergen, advisor to four presidents, chastised Trump yesterday in commenting on the Charlottesville riot and death of a counter-demonstrator. “He said he wants to bring love, not hatred to the country,” Gergen said. “Good. We need to deal with hatred, but he needs to deal with the hatred in his own heart if he wants to bring more love to the country.”

When will the Republican party stand up to such blatant lawlessness? Only when they can deal with the lawlessness in their own hearts. In selecting an autocrat to further their agenda, they are in effect saying freedom means anarchy, rather than living within a democracy of laws based on the world’s first constitution that guarantees equal rights for all of its citizens.

Harlan Green © 2017


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

Tuesday, August 15, 2017

Why Aren't Wages Rising Faster?

Popular Economics Weekly

Everything should point to higher wages and salaries ahead for employees with a 4.3 percent unemployment rate and record corporate profits, but corporate profits go mainly to their executives and owners (and their stockholders) these days. The result is stagnant wages and household incomes.

Graph: Econoday

“Real", or inflation adjusted average hourly earnings slipped 2 tenths in July to a year-on-year 0.7 percent. This reading has been under the 1 percent line since October last year. The monthly reading for this measure did finally show some life in the prior week's employment report with an unadjusted 0.3 percent gain, but it will take a continued run of strength to level out the 2-year trend line which remains in a deep downslope, says Econoday.

It’s as if corporate bosses no longer are interested in maximizing their growth, which is the normal way to maximize profits. They have been successful in boosting profits, but mainly through financial engineering—that is, stock buybacks paid with borrowed money, or mergers and acquisitions that consolidate markets into fewer players.

This increases their monopoly powers to boost profits and resist employee calls for higher wages. It has helped to keep the stock market humming, but not the economic growth that should accompany such profits.

Wages in the United States increased 2.95 percent in May of 2017 over the same month in the previous year. But a better idea of healthy wage growth in the United States is a historical average of 6.26 percent from 1960 until 2017, reaching an all-time high of 13.77 percent in January of 1979 and a record low of -5.77 percent in March of 2009, according to Trading Economics.


This is what normal wage growth should look like, if workers were earning a living wage, and inflation was rising at a normal rate. The inflation rate in the United States averaged 3.28 percent from 1914 until 2017, and was 14 percent in 1980. Wages since then have been suppressed in the name of suppressing inflation, as employees’ bargaining power has been curtailed.

That’s why the national minimum wage is still $7.25 per hour, last raised in 2009, though some cities and states are beginning to raise it to $15 per hour, which is what economists calculate is the minimum living wage for a family of four. And that is just enough to cover what a household has to pay for housing, gas, food, clothing, and other everyday items.

But it’s an uphill battle when business interests rule the markets with little push back or bargaining power held by 80 percent of the workforce that are wage earners, and we wonder why so many refuse to return to work. So we shouldn’t wonder why U.S. labor productivity, which ultimately sets our standard of living, has remained so low of late. It increased at an average annual 2.5 percent from 1948-2007, but just 1.2 percent from 2010-14.

It’s also the reason the U.S. have the highest income inequality in the developed world. The U.S. ranks 106th of the 149 countries in income inequality as ranked by the CIA’s World Factbook with a Gini inequality index of developing countries like Peru and Cameroon. 

Harlan Green © 2017

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

Friday, August 11, 2017

More Job Openings, Lower Inflation, Mean What?

Popular Economics Weekly

The job market continues to fluctuate, as job openings rose sharply in June to 6.163 million from 5.702 million in May. Hires, however, fell sharply, to 5.356 million from 5.459 million. This data set can be volatile but the underlying theme is a separation between openings and hiring, says Econoday, which rather than meaning full employment and higher inflation points to workers who refuse to return to work, unless employers will pay enough to entice them to return.

The number of unfilled jobs rose again to 807,000, whereas the unfilled total had fallen to 194,000 in May, and there were1 million openings the month before. See what I mean?

Graph: Econoday

There is really no inflation to speak of, in fact the looming danger is disinflation (meaning falling inflation), which can lead to outright deflation and falling prices. Economists don’t like falling prices because it could lead to a recession.

That hasn’t happened yet, but interest rates plunged again. The Fed’s preferred Personal Consumption index that measures overall prices is too low.
 

The main determinant of inflation is the cost of labor, which accounts for approximately two-thirds of labor costs. Though wages have risen slightly of late, it still can’t buck the 2.5 percent annual increase it’s been for years.

“At 4.3 percent unemployment, earnings in theory should be much higher, at least above 3 percent where many believe it needs to be before feeding into overall inflation,” said Econoday last week. “And overall inflation, tracked here by core PCE prices, hasn't been moving higher either, dipping to the 1.5 percent line.”

It is the meaning of disinflation, and a reason the Federal Reserve will be hesitant to raise their rate another 0.25 percent in their September FOMC meeting. The Prime Rate that controls revolving debt, and even equity line mortgages has already risen from 3.50 to 4.25 percent.

This is while long term Treasury yields continue to drop. The 10-year Treasury yield is now 2.2 percent, which is why the conforming 30-yr fixed rate is still at 3.50 percent for a 1 pt. origination fee. This is what is called a declining yield curve, which means less profits for banks, since they borrow money at a short-term rate, and lend it at longer term rates.

Consumer prices have risen an unadjusted 1.7 percent over the past 12 months, up slightly from 1.6 percent in June. But on a core basis (without food and energy price changes), which is watched more closely by Fed officials, consumer prices remained at a 1.7 percent annual rate, the same rate as in May and June.

So, we have all these job openings that far outnumber hirings, while consumers can’t or won’t push up prices because their incomes aren’t rising enough to boost product costs and so prices.

That is why there are so many unfilled jobs, and such low inflation. Producers would have to boost wages to attract more workers, and they haven’t done so to date. Why? It could be corporations are choosing to use record profits to overpay their executives and stockholders, in effect rewarding themselves, instead of growing their markets.
It's not what all corporations choose, of course, but we know the 7 million total of unemployed and part time workers that want to work full time hasn’t changed in a long time, according to the Labor Bureau—which is why economic growth is still stuck at 2 percent. Economists have yet to come up with a better answer, whereas many workers have answered such employers with their refusal to return to work.

Harlan Green © 2017


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

Monday, August 7, 2017

Another Great Jobs Report?

Financial FAQs

No economist predicted another 209,000 private payroll jobs would be created in July, or that the last 2 months’ total would be 431,000, or the y-t-d total would be 1,290,000 payroll jobs created this year.

But they should have. The May JOLTS report was an indicator of higher employment numbers, as the unfilled jobs total dropped to 194,000 from 1 million the month before, for a total of 5.472 million hirings in May.


Job gains occurred in food services and drinking places, professional and business services, and health care. Employment growth has averaged 184,000 per month thus far this year, in line with the average monthly gain in 2016 (+187,000), said the Labor Bureau.

The only glitch, if that can be considered a problem, is that wages are still rising at 2.5 percent annually, which means two things. It means consumers won’t buy more than they are already buying, which would in turn increase demand and so increase economic growth, and there’s very little inflation, which means interest rates won’t be rising soon.

Wages aren’t rising faster because there are still many unemployed, or working part time when they would rather be working full time. “Both the unemployment rate, at 4.3 percent, and the number of unemployed persons, at 7.0 million, changed little in July. After declining earlier in the year, the unemployment rate has shown little movement in recent months,” said the BLS.

June’s Real Disposable Income was unchanged and May revised 1 tenth lower to a 0.3 percent gain, as I said in an earlier column. The real problem is weak wage growth, as most jobs being created are in low wage industries, like hospitality and even healthcare. Year-on-year, overall prices are up only 1.4 percent with the core little better at 1.5 percent.

Graph: Econoday

The 3 major employment sectors were Professional and Business Services, Healthcare, and Leisure and Hospitality as usual, all generally lower-paying job sectors.

Employment in food services and drinking places rose by 53,000 in July, said BLS. The industry has added 313,000 jobs over the year. Professional and business services added 49,000 jobs in July, in line with its average monthly job gain over the prior 12 months.

In July, health care employment increased by 39,000, with job gains occurring in ambulatory health care services (+30,000) and hospitals (+7,000). Health care has added 327,000 jobs over the past year.

What are those wages? In July, the BLS says, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $26.36. Over the year, average hourly earnings have risen by 65 cents, or 2.5 percent. In July, average hourly earnings of private-sector production and nonsupervisory employees increased by 6 cents to $22.10.

So the U.S. economy is in a bit of a bind, if it wants to grow faster. And that is a lack of population growth, one of two main drivers of GDP growth, when conservatives want to limit immigration?

The U.S. native population is barely growing, so where else are those workers coming from? And businesses are investing a bare minimum in capital expenditures, robots and other technologies that would increase productivity, the other driver of growth.

And then we have jumped off the Paris Accord bandwagon, when China is tripling its investments in alternative energy sources, such as wind and solar farms. That will also boost productivity and hence growth—for China and the rest of the world that isn’t ignoring climate change.

But conservative still have their heads stuck in coal mines, for some reason. Go figure. What century do they think we are living in?

Harlan Green © 2017

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

Tuesday, August 1, 2017

Great Q2 GDP Growth, But Q3?

Popular Economics Weekly

Second quarter GDP came in at a 2.6 percent annualized growth rate. This is one of the best showings of the last 2 years and keeps overall growth at 2 percent; because first quarter's growth was downwardly revised to 1.2 percent. And Q3 growth isn’t looking good, as June personal income and expenditures (PCE) just took a huge plunge—not a good omen for Q3.


June PCE income was unchanged and May revised 1 tenth lower to a 0.3 percent gain. Consumer spending was up 0.1 percent gain. Price data are flat, unchanged in the month with the core rate (less food and energy) up 0.1 percent for a second weak month in a row. The real problem is weak wage growth, as most jobs being created are in low wage industries, like hospitality and even healthcare. Year-on-year, overall prices are up only 1.4 percent with the core little better at 1.5 percent.

Graph: Econoday

What is wrong with the U.S. economy that it can’t grow faster? Nothing, really, given almost no productivity growth, and an aging population. This is maximum speed without an increase in productivity, in other words, and that won’t happen unless some of the $4.6T in deferred infrastructure spending gets done.

Can you imagine what new highways, bridges, airports, energy infrastructure, city and state water treatment facilities would do to productivity growth? Labor productivity rose at an average annual rate of 3-1/4 percent from 1948 to 1973, says the Federal Reserve, whereas, the average growth rate of productivity was about 1.7 percent in the period 1974 to 2016.
“If labor productivity grows an average of 2 percent per year,” said Fed Vice-Chair Stanley Fischer in a recent speech, “average living standards for our children's generation, will be twice what we experienced. If labor productivity grows an average of 1 percent per year, living standards will take two generations to double.”
“Governments can take sensible actions to promote more rapid productivity growth,” continued Fischer. “Broadly speaking, government policy works best when it can address a need that the private sector neglects, including investment in basic research, infrastructure, early childhood education, schooling, and public health.”
But construction spending also dropped in June—1.3 percent, mainly highways and streets in the government sector. Construction spending in manufacturing was also down. Doesn’t congress realize this is a sign that infrastructure expenditures are going down, rather than rising? This should be the priority, not attempting to repeal Obamacare, or cut taxes.

Our deficit problems would be solved if congress would focus on policies that really matter—like increasing spending on factors that enhance productivity, which would in turn increase GDP growth, which would in turn lower the budget deficit and obviate the need for draconian tax cuts.
“Reasonable people can disagree about the right way forward, but if we as a society are to succeed, we need to follow policies that will support and advance productivity growth. That is easier said than done. But it can be done,” says Fischer.
Economists such a Stanley Fischer know how this is done. In fact, we can only really survive as a viable democracy if we listen to the experts, rather than political ideologues.

Harlan Green © 2017


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