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

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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

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Sunday, September 10, 2017


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

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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

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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

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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

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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

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