Is 4% GDP Growth Real?

Popular Economics Weekly

image

Graph: Econoday

Many economists, including Trump economic advisor Larry Kudlow, are predicting up to 4 percent economic growth over the next few quarters. Why? Full employment is enticing consumers to buy more, with booming retail sales and consumer confidence.

“Sales at health & personal care stores were unusually strong in June, up 2.2 percent following a series of very strong gains in the 1 percent range,” reports Econoday. “Nonstore retailers, in a sign of e-commerce strength, rose 1.3 percent in June and continue to make ground compared to other components. Gasoline stations, boosted by high gas prices, saw a 1.0 percent rise in June sales following a 3.0 percent spike in May. Building materials, at plus 0.8 percent in June, and furniture store sales, up 0.6 percent, are both positive indications for residential investment.”

The problem with understanding the significance of retail sales is that they aren’t corrected for inflation, and consumer (CPI) inflation is approaching 3 percent, so 6 percent nominal annual retail sales is closer to 3 percent in real sales. And that is probably the high end, as consumers’ real average paychecks are increasing 2.7 percent, so any increase in buying is limited by the amount consumers can borrow with rising interest rates, as I’ve been saying.

Is 4 percent GDP growth possible for the next several quarters, as Kudlow, et. al. are predicting? It depends on how long can this business expansion continues, says Brookings economist Robert Shapiro.

“Trump’s middling record on GDP and investment raises the question of how much longer the current expansion, now just two months shy of entering its tenth year, can last,” says Shapiro. “Developed economies move in business cycles, and so they weaken eventually as a matter of course. That’s where the United States is today. This late in any economic expansion, the pool of available workers for new jobs is modest, most attractive investment opportunities have been taken, and any pent-up consumer demand for large durable purchases has been exhausted.”

image

Graph: MarketWatch

In fact, wages are falling after inflation by another measure. According to the Labor Department, median weekly earnings fell 0.6 percent in inflation-adjusted dollars in the second quarter, compared to the same time period of 2017. That’s the third straight quarter where inflation has outpaced wage growth, according to MarketWatch’s Steve Goldstein.

This is an important statistic because real personal income growth is one of the four pillars that measure the onset of a recession. Nonfarm employment, industrial production and real retail sales are the other three pillars. All four indicators must peak for a recession to begin. So far, median weekly earnings show weakness, but the other three still show growth.

A more public sign of recession is when there are two consecutive quarters of GDP decline. So to be clear, weakness is showing in just one of the four legs, and there are predictions of at least two more quarters of positive GDP growth.

But then there is the looming trade war. The International Monetary Fund has just warned that President Trump’s trade wars with everyone could cost the world’s economies some $430B in lost growth. The Washington-based organisation said the current threats made by the US and its trading partners risked lowering global growth by as much as 0.5 percent by 2020, or about $430bn in lost GDP worldwide.

It has escalated from $3.6 million in tariffs first imposed in January against 18 types of Chinese solar panels and washing machines to more than 10,000 products worth some $362 billion, as China, Canada and the European Union have retaliated with their own tariffs, according to the latest New York Times estimate.

And 2020 is the year of our next presidential election. So investors can gamble that President Trump won’t continue to double down on his trade wars, if he wants to be re-elected. But it is a very high-stakes gamble.

Harlan Green © 2018

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

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

Inflation On the Rise

The Mortgage Corner

Inflation is finally rising enough to bite into consumers’ paychecks. It is also a sign that economic growth is increasing at least temporarily, as consumers borrow more to buy more. But the bottom 50 percent of income earners have seen no real average annual income growth since 1980, which means at least one-half of all consumers have to eventually stop buying and start paying back those loans when inflation and interest rates increase further.

image

Graph: Econoday

Retail inflation is up 2.9 percent annually, which has to begin to hurt the heavily indebted consumer, as I said. But enthusiasm over the full employment numbers and job availability are keeping consumers buying for the moment. It is because there are more available job openings than jobs being created at the moment—almost 1 million, a huge gap —which is why more workers are quitting their current jobs, reports the Labor Department’s JOLTS survey.

The rising so-called Quits rate is big news because it means workers are moving to better job opportunities; a sign of rising incomes as well. Americans quit their jobs in May at the fastest rate since 2001, showing that employees feel so good about the economy they are willing to leave one company for another.

image

Graph: Econoday

Job openings slipped back but still remain very abundant, at 6.638 million in May vs. an upward revised and record 6.840 million in April. Openings are up 16.7 percent compared to May last year and are far above hiring, at 5.754 million in May for comparatively distant 4.9 percent year-on-year gain.

But watch out, the University of Michigan consumer sentiment index fell in July to a reading of 97.1, below June’s level of 98.2, which is an indication that the trade war bombast is beginning to worry consumers. That’s the lowest level since January. Prices are on the rise, yet interest rates haven’t yet followed.

Why? Part of the reason is that longer-term interest rates are stuck at a very low level, so that there is little difference between the 2 and 10-year Treasury yield, a sign that many bond investors don’t trust the predictions for higher growth. It’s a flight-to-quality syndrome when investors flock to a safe haven from future uncertainty with lower, but safer yielding investments, such as government-guaranteed sovereign bonds.

So we are seeing a growing unease in investors and consumers about the future, with consumers’ personal savings rate barely above zero (2.8 percent), with no cushion to fall back on should there be either a market crash, or full-blown trade war that lifts prices for everyone, or an actual war.

Harlan Green © 2018

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

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

ANSWERING the KENNEDYS CALL

image

We are announcing a new blog series—ANSWERING THE KENNEDYS CALL. It will report on what is being done today to address the problems that deal with record income inequality, immigration and civil rights, environment protection, and the rebuilding of local communities both at home and abroad that we cover in a forthcoming book, ANSWERING the KENNEDYS CALL: Inspiring Lessons in Public Service and Community Building from the Sixties for the Future.

It is a book about the cultural and social revolution of the Sixties carried forward by newer generations that is healing our broken communities and a dysfunctional government.  The Sixties created many of the benefits we enjoy today—environmental protection, civil rights for minorities, scientific research that brought us moon landings, the Internet, modern commerce, and a greater openness to other peoples and countries. 

By portraying the history of community development via the experiences of the Sixties’ generations, and practices of M. Scott Peck, Cesar Chavez and sociologist Robert Putnam in community organizing, we will show we have never really left that hopeful spirit that is creating new forms of a healthy, functioning, participatory democracy.

The efforts of those generations in making the world a better place is finding a response among younger generations today in countering the rampant pessimism and sense of limited possibilities prevalent in much of our society, due in large part to the economic uncertainty and successive recessions that have impoverished a majority of Americans since the 1980s.

President Obama is now mounting a campaign with a similar goal to inspire our youth to a life of service; and the youth he talks about are my target audience:  http://thehill.com/blogs/pundits-blog/the-administration/330269-full-remarks-obama-at-chicago-event-discusses-future.

“The only folks who are going to be able to solve that problem are going to be young people, the next generation,” said President Obama. “And I have been encouraged everywhere I go in the United States, but also everywhere around the world to see how sharp and astute and tolerant and thoughtful and entrepreneurial our young people are. A lot more sophisticated than I was at their age. And so the question then becomes what are the ways in which we can create pathways for them to take leadership, for them to get involved?”

We begin with this recent headline from the United Farmworkers Union: Salinas, Calif.-based D’Arrigo Bros. of California has just signed a new contract with the United Farm Workers union that will cover more than 1,500 farm workers, according to this press release from The Packer, “the fresh fruit and vegetable industry’s leading source for news, information and analysis.”

The agreement provides family medical, dental and vision benefits for the farm workers that will be paid for by D’Arrigo. Health insurance will be provided by the Robert F. Kennedy Medical Plan, a plan established in 1968 specifically for farm workers and their families.

“Both parties have come to a new era of a working relationship and realize the agricultural workers need to be taken care of,” President John D’Arrigo said in the release. “That investment will hopefully translate into people wanting to work here the whole season,”

Employees also receive hourly and productivity pay increases. The incentive and box pay rate will increase by 3 percent in the first year, 3 percent in the second year and 2.5 percent in the third year. Workers will also receive six paid holidays a year, and loaders and machine operators who use their personal vehicles will be paid 50 cents per mile for travel time.

“To be willing to put that much investment in their employees really demonstrates the value that John D’Arrigo is placing on his employees,” UFW president Arturo Rodriguez said in the release.

Why the realization from a major Salinas, California grower that union workers are important to his business? There is a growing scarcity of seasonal farmworkers due to the ICE sweeps and “zero tolerance policy” of the Trump administration that is decimating America’s agricultural industry. Growers are beginning to look to the UFW to supply those seasonal workers that labor contractors formally provided, but were mainly undocumented workers.

It took the first-term election of California’s Democratic Governor Jerry Brown in 1975 to give farmworkers bargaining rights with his enactment of the California Agricultural Labor Relations Act that legalized the union organization of farmworkers.

Today’s suppression of employee bargaining rights is little different, even though there is a National Labor Relations Board to enforce union collective bargaining rights. The problem is 28 so-called right-to-work states under Republican control allow private sector nonunion employees off the dues hook who work in a job that benefits from union bargaining.

And just recently the Supreme Court overturned a 40-year precedent in Janus v. AFSCME that nonunion government workers cannot be forced to pay fees to public sector unions if they chose not to belong to them. Those fees, approved by the court in the 1977 case Abood v. Detroit Board of Education, cover collective bargaining costs such as contract negotiations, but are meant to exclude political advocacy.

SCOTUS’s Chief Justice Alito stated in his majority opinion that taking the side of governments in such labor disputes saves governments money. Really? Justice Alito is admitting that weakening government unions’ ability to collect dues will also weaken employees’ ability to bargain for their pay and benefits.

We don’t buy his argument that he wants to help governments with their finances. He as a good conservative is only interested in downsizing government in any way he (and probably his 4 fellow SCOTUS conservatives) can, which includes downsizing the standard of living of both union and nonunion government employees.

Harlan Green © 2018

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

Posted in Economy, Politics, Uncategorized | Tagged , , , , | Leave a comment

Consumers ‘Another Day Older and Deeper in Debt…”

Popular Economics Weekly

“Ya load sixteen tons, whaddya get, another day older and deeper in debt…”, the famous folksong sung by Burl Ives and Tennessee Ernie Ford describes today’s consumers who are still spending huge amounts of borrowed money at the end of this second longest business cycle since the end of WWII. And it can’t last much longer since consumers’ average incomes have barely risen since the 1970s in real terms.

Consumer borrowing picked up in May, according to the Federal Reserve on Monday. Total consumer credit increased $24.6 billion in May to a seasonally adjusted $3.9 trillion. That’s an annual growth rate of 7.6 percent, which is the fastest credit growth since November.

image

What are the numbers? Economists has been expecting half that gain; $12.4 billion, according to Econoday. Credit grew a revised $10.3 billion in April, up from the prior estimate of $9.3 billion. When we compare the 7.6 percent annual credit growth rate with consumers’ personal income growth rate of 2.7 percent, we see why consumers have become so indebted.

image

And this borrowing binge cannot last. As noted in the World Inequality Report 2018, in both Europe and the US the top 1 percent of adults earned around 10 percent of national income in 1980. In Europe that has risen today to 12 percent, but in the US it has reached 20 percent. In the same time period in the US annual income earnings for the top 1 percent have risen by 205 percent, while for the top 0.001 percent the figure is 636 percent. By comparison, the average annual wage of the bottom 50 percent has stagnated since 1980.

Interest rates are also on the rise, with the Fed having raised their short term rates (mostly tied to the Prime Rate) 1.75 percent, and making noises about 2 more raises this year. Why? Inflation is growing with the fears of a Trump trade war giving boost to prices in those affected by retaliatory tariffs on imports US companies depend on. The Prime Rate has risen from its bottom of 3.25 percent in 2008 during the Great Recession to 5 percent today—also a 1.75 percent rise.

The wholesale Producer Price Index for final demand of materials that go into finished products rose 0.3 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. On an unadjusted basis, the final demand index moved up 3.4 percent for the 12 months ended in June, the largest 12-month increase since climbing 3.7 percent in November 2011.

Any further raises in either interest rates or inflation could tap out those consumers that are most heavily indebted.

Harlan Green © 2018

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

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

Trumpcare is Killing US!

Financial FAQs

Trumpcare
Makes Us
Sick Black T-Shirt Front

It took 4 hours to coax Patricia Okoumou, a Congolese immigrant, down from the Statue of Liberty while wearing a t-shirt that said, “Trumpcare Makes Us Sick.” It was serendipitous timing. She was part of a group wanting the abolition of ICE, but her t-shirt also brought attention to Republican and Trump administration’s efforts to abolish Obamacare, when a just released HHS report states that Obamacare is doing better than ever for those in most need of health insurance.

President Trump has to be aware that most Americans want to keep Obamacare, even with the latest Republican tax cut bill that also abolishes the Obamacare mandate in 2019 requiring Americans not covered to pay a penalty if they have no health care coverage. The result has been higher premiums for those above the federal poverty level not subsidized by the federal government.

The reason Obamacare is popular with a majority of Americans is that the alternative Trumpcare bills attempted by Republicans last year wouldn’t just make Americans sicker, they will kill more people. Approximately 17,000 people could have died if a House Republican health proposal endorsed by the Trump administration had become law in 2018, who otherwise would have lived. By 2026, the number of people killed by Trumpcare could have grown to approximately 29,000 in that year alone, according to ThinkProgress, progressive think tank.  It is backed up by a CBO estimate that 24 million more Americans could lose health insurance by 2026 under Trumpcare.

Trump’s assertion that he has “gutted” Obamacare in his attempt to sicken and kill more Americans simply isn’t true. In fact, those in most need of health care coverage, those earning less than the federal poverty line, $48,500 for an individual, and $100,400 for a family of four, are doing quite well, according to the latest assessment from the Centers for Medicare and Medicare Services that administers Obamacare.

image

Graph: LA Times

Overall, according to the figures released by the agency, 10.6 million Americans had signed up for ACA coverage by February and paid their first month’s premium, according to the Los Angeles Times. That was about 3 percent ahead of the 10.3-million enrollment at the same moment in 2017, the agency said.

Unsubsidized customers responded to the challenge of higher premiums by abandoning their health coverage in droves, HHS reported. The trend began in 2017, after Trump’s inauguration. That year, subsidized enrollments fell by about 223,000, or 3 percent. But unsubsidized enrollments fell by 1.3 million, or 20 percent.

This is while subsidized enrollment (those receiving Advanced Premium Tax Credits, or APTC) was 23 percent larger than unsubsidized (non-APTC) in 2014 and 32 percent larger in 2016 — and reached 61 percent in 2017.

Trump’s answer to the premium increases caused by his own policies has been to undercut the law even further by eliminating the consumer protections that make health insurance worth buying. These include requirements that all policies cover essential health benefits such as maternity care, hospitalization and prescription drugs, and opening the marketplace further to short-term junk insurance that carries lower premiums but offers substandard coverage.

We are not even mentioning Trump’s efforts to abolish the exemption for existing illnesses, and take away the federal payments meant to subsidize states’ Medicaid programs, which will result in even higher health insurance premiums for everyone.

So who are those President Trump and his Republican synchophants really killing with their heartlessness?  Those now above the poverty line—the increasing number of unsubsidized in the middle class.  And they can and will vote, on what has become the number one issue for voters in November.

A new Pew Research Center survey reports 60 percent of Americans say the government should be responsible for ensuring health care coverage for all Americans, compared with 38 percent who say this should not be the government’s responsibility. The share saying it is the government’s responsibility has increased from 51 percent last year and now stands at its highest point in nearly a decade.

So, Trump and your Republican supporters of big business, please go right ahead and keep up your efforts to repeal and replace Obamacare if you want to become irrelevant.  Voters in November will know what this means.

Harlan Green © 2018

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

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

June Employment Robust—For How Long?

The Mortgage Corner

More workers are being hired in manufacturing and professional services in June’s unemployment report. But this is before the trade war now taking hold with at least 5 allies and trading partners.

Washington’s 25 percent duties on Chinese imports went into effect at midnight EDT and affected products such as water boilers, X-ray machine components, airplane tires and various other industrial parts. China immediately retaliated with tariffs on its $34 billion list of goods issued last month, including soybeans, pork and electric vehicles.

We know that manufacturing will also be hurt by the tariffs on imported steel and aluminum that go into the finished products the US exports, so the 36,000 hires in manufacturing may be a temporary blip as manufacturers attempt to get ahead of already occurring price rises.

Even more hurt will be put on Midwestern farmers, as China, the EU, Canada, and maybe even Mexico will be targeting their produce with higher tariffs in response to Trump’s levies.

image

Graph: MarketWatch

A sharp rise in the number of unemployed actively looking for a job, to 6.564 million from 6.065 million in May, lifted the unemployment rate 2 tenths to 4.0 percent from 3.8 percent in May, and also lifted the participation rate 2 tenths to 62.9 percent.

It’s because for the first time in nearly 20 years of existing records, already in April the number of job openings at 6.698 million in the Labor Department’s JOLTS report exceeded the number of unemployed actively looking for work, at 6.346 million. It suggests employers are having a hard time finding people to fill the jobs. That is the understatement of the year.

The gap between openings and hires in the JOLTS report was 1.120 million, the second largest on record next only to March’s 1.147 million. It also gives a picture of why employers are having finally to raise their workers’ pay.

image

Graph: Calculated Risk

The Bureau of Labor Statistics reported “The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in June at 4.7 million. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.”

But add the 1.5 million that want to work but haven’t worked in the past 26 weeks, and we still have a decent labor pool to draw from. It all adds up to 7.8 percent that are the “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force,” per the BLS.

So is the June jobs report just an attempt to get ahead of the inevitable jump in prices and job losses that a trade war causes? Such a war has to seriously hurt all business, not just US businesses.

Harlan Green © 2018

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

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

Trumpcare Makes Us Sick, or Worse!

Financial FAQs

It took 4 hours to coax Patricia Okoumou, a Congolese immigrant, down from the Statue of Liberty while wearing a t-shirt that said, “Trumpcare Makes Us Sick.” It was serendipitous timing. She was part of a group wanting the abolition of ICE, but her t-shirt also brought attention to Republican and Trump administration efforts to abolish Obamacare, when a just released HHS report states that Obamacare is doing better than ever for those in most need of health insurance.

President Trump has to be aware that most Americans want to keep Obamacare, even with the latest Republican tax cut bill that also abolishes the Obamacare mandate in 2019 requiring Americans not covered to pay a penalty if they have no health care coverage. The result has already been higher premiums for those above the federal poverty level not subsidized by the federal government.

The reason Obamacare is popular with a majority of Americans is that the alternative Trumpcare bills attempted by Republicans last year wouldn’t just make Americans sicker. Approximately 17,000 people could have died if a House Republican health proposal endorsed by the Trump administration had become law in 2018, who otherwise would have lived with health care coverage.  By 2026, the number of people killed by Trumpcare could have grown to approximately 29,000 in that year alone, according to Think Progress, a progressive think tank, that is backed up by a CBO estimate that 24 million more Americans could lose health insurance by 2026 under Trumpcare.

Trump’s assertion that he has “gutted” Obamacare in his attempt to sicken more Americans simply isn’t true. In fact, those in most need of health care coverage earning less than the federal poverty line, $48,500 for an individual, and $100,400 for a family of four, are doing quite well, according to the latest assessment from the Centers for Medicare and Medicare Services that administers Obamacare under HHS.

Overall, according to the figures released by the agency, 10.6 million Americans had signed up for ACA coverage by February and paid their first month’s premium, according to the Los Angeles Times. That was about 3 percent ahead of the 10.3-million enrollment at the same moment in 2017, the agency said.

Unsubsidized customers responded to higher premiums by abandoning their health coverage in droves, HHS reported. The trend began in 2017, after Trump’s inauguration. That year, subsidized enrollments fell by about 223,000, or 3 percent. But unsubsidized enrollments fell by 1.3 million, or 20 percent.

This is while subsidized enrollment (those receiving Advanced Premium Tax Credits, or APTC) was 23 percent larger than unsubsidized (non-APTC) in 2014 and 32 percent larger in 2016 — reached 61 percent in 2017.

image

Graph: LA Times

Trump’s answer to the premium increases caused by his own policies has been to undercut the law even further by eliminating the consumer protections that make health insurance worth buying. These include requirements that all policies cover essential health benefits such as maternity care, hospitalization and prescription drugs, and opening the marketplace further to short-term junk insurance that carries lower premiums but offers substandard coverage.

We are not even mentioning Trump’s efforts to abolish the exemption for existing illnesses. In fact, Trump and Republican attempts to repeal and replace Obamacare are not only making Americans sicker, but killing US in larger numbers, as well.

Harlan Green © 2018

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

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