There is a growing consensus among economists that recovery from the Great Recession will continue for several more years. This is in part because there are really no signs of a looming recession. Inflation is still too low, job openings are still plentiful, and housing, the usual predictor of a slowdown, is still in an early stage of recovery.
Jonathan Golub of RBC Capital Markets is one such optimist. ”No two recessions are the same, but they tend to follow a similar pattern. Typically, an accelerating economy burns through existing spare capacity. This leads to inflationary pressure, which forces the Fed to act. As markets anticipate rate hikes, the yield curve inverts. Growth slows and, more often than not, the economy rolls over, taking the market with it.”
But the Labor Department’s JOLTS report just out signals there are plenty of jobs–in part because hiring picked up: there were 5.14 million hires in October, up from 5.08 million in September.
And though there were 5.38 million job openings in October (yellow line in graph), down from 5.53 million in September, some 2.78 million workers left work voluntarily, up from 2.77 million in September (blue bars in graph). This is a sign that workers are gaining confidence in the job market and their ability to find other jobs.
So we are hardly approaching full employment. And Friday’s unemployment report said the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 319,000 to 6.1 million in November, following declines in September and October. Their hours had been cut back because they were unable to find a full-time job, said the BLS. (Though over the past 12 months, the number of persons employed part time for economic reasons is down by 765,000, a good sign.)
Another telltale sign of continued growth are the low inflation numbers, combined with barely rising incomes. Year-on-year, as seen in the dark line of the graph, average hourly earnings dipped 2 tenths to 2.3 percent, says Econoday. Whereas the Fed’s central inflation gauge, core PCE prices, are up just 1.3 percent. It’s the light blue line in the graph, and has been trending lower for the past year. When energy and food are included, the PCE drops to a year-on-year rate of only plus 0.2 percent.
And low inflation (ie, cheap gas, commodities), plus rising incomes are reasons for optimism among consumers. As much as 1 million barrels per day of Iranian oil is about to come back into world markets, per the nuclear arms agreement, which will only bring down energy prices further. And demand in China for all commodities has weakened, as it works through its oversupply problems.
What about housing? The Mortgage Bankers Association just reported that purchase mortgage applications have risen a huge 1.2 percent from the previous week, while its unadjusted Purchase Index increased 36 percent compared with the previous week and was 29 percent higher than the same week one year ago. This means more housing sales, folks.
Its Market Composite Index, a measure of mortgage application volume, increased 1.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 43 percent compared with the previous week. Even the Refinance Index increased 4 percent from the previous week.
This is when both existing-home sales and housing construction are still expanding. A strong housing market depends on mortgage rates staying near current lows, of course, but we believe that Yellen’s Fed dares not raise short term rates more than 0.25 percent in the near term.
In fact, Treasury Bond yields are also at record lows, with slowing worldwide growth. Foreign investors prefer to buy U.S.Treasury securities when other countries aren’t doing well; in comparison to our own better growth prospects.
So any rise in energy prices is just not in the cards, interest rates should stay low, which keeps down so many other costs—including lower household expenses, as well as production costs. These conditions spell future growth, rather than a near term recession.
Harlan Green © 2015
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