Thursday, November 16, 2017

The Irrelevance of President Trump

Popular Economics Weekly

It’s sad for America that the President of the United States has become irrelevant to most of the problems facing Americans and the world. But it’s heartening as well, because in choosing to return to a 1950’s that never was—the brief emergence of a white middle class—Trump can’t do much damage to future growth by choosing to isolate himself and his constituency from the real world. Do we need a better definition of President Trump’s irrelevance?

Let’s start with his fiasco of an Asian trip, where he fawned over foreign leaders who gave him massive pageants, but no trade concessions, while abandoning the Trans- Pacific Partnership.

The remaining 11 countries, including Japan, Australia, Mexico and Malaysia, said they had revived the Trans-Pacific Partnership (TPP) deal, a multilateral agreement championed under the Obama administration.

The Guardian reported Ministers meeting in Danang, Vietnam agreed on the “core elements” of what was now called the comprehensive and progressive agreement for Trans-Pacific Partnership, a joint statement read.

And “American leaders from state capitals, city halls and businesses across the country have shown up in force” in Bonn, Germany, to discuss carrying out the 2015 Paris climate agreement,” said California Governor Jerry Brown and Michael Bloomberg in yesterday’s New York Times.

This is when President Trump announced at the beginning of his Presidency that he was abandoning the Paris Accord in favor of supporting a return to coal and oil energy. But that isn’t happening for the rest of America, as some 50 percent of U.S. states and cities are represented in Bonn.

“California just extended its cap-and-trade emission program through 2030 and has adopted incentives that will help put 1.5 million electric vehicles on the road by 2025,’ said Jerry Brown, Governor of the sixth largest economy in the world.

Graph: Marketwatch.com

And the U.S. just released its latest congressionally mandated Climate Science Special Report that says 2017 wreaked the most catastrophic destruction in 90 years with an estimated $175 billion in property damage. Only the San Francisco Earthquake (1906), Chicago Fire (1871), and Great Flood (1927) caused more destruction.

What is Trump afraid of, that he fawns over Chinese and Russian leaders, while extracting no concessions from them? He was seen to spend more time with Vladimir Putin at the Asia-Pacific Economic Cooperation summit in Vietnam than any other leader.

Even his support of Republicans’ so-call tax reform bills is irrelevant, as he wants Republicans once again to attempt to repeal the Obamacare mandate, when more than 50 percent of Americans now support Obamacare, according to the latest Kaiser Family Foundations Health Tracking Poll.
“When asked whether it was good or bad that the Senate GOP had failed to repeal ObamaCare, answers were more direct. Six out of 10 Americans say that Senate Republicans' failure to repeal the law was a "good thing," said the KFF poll, “compared to just 35 percent who disapproved and wanted the law repealed.”
That is irrelevance of the highest order, and as many pundits have noted, it is also the definition of insanity: attempting to repeal Obamacare more than 50 times, and expecting a different result.

Another feature of the tax reform bill is that it requires taking away approximately $1.5 trillion in Medicare and Medicaid benefits to give the wealthiest an unnecessary tax cut. Therefore, it won’t help the shrinking middle class, or any income class, except the top one percent.
Harold Myerson voiced recently in The American Prospect, “The United States now has the highest percentage of low-wage workers – that is workers who make less than two-thirds of the median wage- of any developed nation. Fully 25 percent of all American workers make no more than $17, 576 a year.”
The irrelevance of this President is therefore a real danger to our health and standard of living in so many ways.

Harlan Green © 2017


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Tuesday, November 14, 2017

Who Really Needs Tax Reform?

Financial FAQs

Firstly, we know this isn’t real tax reform when the respective Senate and House bills allow an additional $1.5 trillion in debt added to the existing $20 trillion of national debt. Why, when during prosperous times such as these with two consecutive quarters of 3 percent GDP growth, good economics tells us it is time to pay down the debt?

It gets worse. Some spending is cut—up to $1.5 trillion in Medicare and Medicaid benefits for the poorest and elderly. And the House bill proposes cutting out the exemptions for property taxes, state and local taxes, as wellas abolishing the estate tax.  The Senate bill cuts the $1 million mortgage interest deduction in half to make up for the loss in tax revenue.

So, instead of a tax cut, the middle and lower income earners actually have an income cut--both in benefits and loss of homeowners' tax deductions.  Real tax reform would mean higher taxes for the wealthiest and the close out of the tax loopholes that enable them to conceal their wealth overseas; rather than pay down the huge federal debt.

And all this is to be done without any input from Democrats. Why would Republicans even try to ram this through with only Republican votes in the first place? Instead of spending the increased tax revenues on reducing our national debt, they want to give it to their wealthiest donors and corporations—that are already making record profits.


It also happened in 2001, when President GW Bush and VP Dick Cheney blithely erased President Clinton’s preceding four years of actual federal budget surpluses with tax cuts for these same people. What was their rationale?

Their actions were based on the thesis of a then unknown economics graduate student, Arthur Laffer, who drew what came to be known as the Laffer Curve on a napkin in a 1974 meeting with Dick Cheney, then President Gerald Ford’s deputy chief of staff. It was a rationalization never confirmed or evidenced by either history or validated by economic theory.
“The conventional wisdom was: You want more revenue, you raise taxes,” Cheney recalled 30 years later, in a Bloomberg interview reenacting that landmark 1974 meeting. “What Art brought to the table with these curves is that if you wanted more revenue, you were better off if you lowered taxes, to stimulate economic growth and economic activity.”
But that didn’t happen. In 2013 the Center for Budget and Policy Priorities estimated that, when the associated interest costs are taken into account, the Bush tax cuts (including those that policymakers made permanent) would add $5.6 trillion to deficits from 2001 to 2018.  This means that the Bush tax cuts will be responsible for roughly one-third of the federal debt owed by 2018.

In other words, the Clinton surpluses were squandered, instead of bolstering the social security and Medicare funds. Brookings Institution economist William Gale and Dartmouth professor Andrew Samwick, former chief economist on George W. Bush’s Council of Economic Advisers, found that “a cursory look at growth between 2001 and 2007 (before the onset of the Great Recession) suggests that overall growth rate was … mediocre” and that “there is, in short, no first-order evidence in the aggregate data that these tax cuts generated growth.”
When will this foolishness stop, and rational economic thinking return to congress? New York Times’ Paul Krugman says: “..anyone who has paid attention to U.S. politics knows the answer. First, they will lie, unashamedly, about what their bill actually does. Second, they will try to distract working-class voters by stoking racial animosity. That didn’t work too well in Tuesday’s elections, but they’ll keep on trying.”
Harlan Green © 2017

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Thursday, November 9, 2017

New Home Sales-Ownership Rate Rising

The Mortgage Corner

New home sales shot up 19 percent in September to a consensus crushing annualized rate of 667,000. This is the largest percentage gain in 28 years and the highest level of the cycle, since October 2007. In stark contrast, existing home sales, the green line, haven't shown any kind of bounce.


Homeownership is also rising. The Census Bureau last week reported that ownership increased to 63.9 percent in the third quarter, the highest level since 2014. The rate was up from 63.7 percent in the second quarter and 63.5 percent a year earlier. It is creeping up to the 65 percent historical ownership rate, but it remains below the 69 percent clocked at the peak of the housing bubble a decade ago.

What does this mean? Firstly, the housing supply is catching up with demand, and it will take some pressure over rising rents. The rise in homeownership comes as other forces weaken the rental market, including a surge in supply from developers hoping to cash in on rising rents. In September, the seasonally adjusted rate of apartments under construction was 596,000, nearly twice the long-term average of 300,000 units, according to U.S. Census data.

The new housing supply boosted the national vacancy rate to 4.5 percent in the third quarter of this year, compared with 3.5 percent a year earlier, according to John Chang, head of research for real-estate services firm Marcus & Millichap. Nationally, rents were up 3.5 percent between the third quarters of 2016 and ’17, compared with 4.5 percent the previous years, he said.

And it is the millennial generation, children of the baby boomers and the largest generation ever, that are boosting homeownership rates as they begin to marry and raise families. Their marriage rate over the next five years will likely play an important role in demand for apartments and houses, according to Dr. Chang.


The market is not so good for existing-home sales. Econoday reports the red line of pending sales shows the pending index flat at 106.0 and existing homes likely to hold near 5.400 million. Resale prices ($245,100 median) are far lower than new homes ($319,700), but it's not helping sales. It peaked in January and has been trending down ever since.

But if construction and new-home sales continue to pick up, it will move more millennials out of their rentals. They are taking their time to nest, and the oldest of those born from approximately 1980 to 1996 will soon be approaching 40 years of age.

Sales haven’t declined more because mortgage rates are holding @ 3.50 percent for a 30-year fixed conforming loan with 1 origination point, and 3.625 percent for the so-called Hi-balance 30-year conforming rate in high-expense states and regions.

This is actually an incredible number, as interest rates this low in the eighth year of the recovery from the Great Recession attests to the severity of the recession, and fact that household incomes are only beginning to recover.

Harlan Green © 2017

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Monday, November 6, 2017

A Gangbusters Employment Report

Popular Economics Weekly

Payrolls rose 261,000 in October following an 18,000 rise in September, easily weathering the season's hurricane disruptions, the government said Friday. But 765,000 dropped out of the labor force, which is why the unemployment rate fell to 4.1 percent.

The swing factor between the two months is restaurants where payrolls jumped 89,000 after plunging 98,000 during September's storms, said Econoday. Professional business services underscore how urgent demand for labor is, rising 50,000 in October with the temporary help component up 18,000 for the strongest rise of the year.


Where are the new workers to come from with so many discouraged workers, if economic growth is to continue? Tax cuts won’t do it, when there aren’t enough workers willing to work. Wages have to rise faster to bring back those workers.

Wages fell a penny to an average of $26.53 an hour. The year-over-year increase in hourly pay slowed to 2.4 percent from 2.8 percent, though wage figures for the past two months were distorted by the storms. But most of the wage increase was in low-paying restaurant work, which means corporations still aren’t boosting wages enough to bring back discouraged workers.


And those actively looking for work fell nearly 300,000 to 6.520 million for an unemployment rate of 4.1 percent, the lowest in 17 years, reports Econoday. When also including those not actively looking but wanting a job, the number moves to only 11.750 million which is a 10-year low.

It will take more generous wages to bring back those workers now sitting on the sidelines. In other words, the return of discouraged workers may have run its course, unless corporations decide to pay more for their workers, rather than continuing to boost the pay of their executives (up more than 4 percent). The labor participation rate fell a steep 4 tenths to 62.7 percent, which is 4 percent below the longer term average, and really a reflection of the fact that wages still aren’t rising faster than inflation.

So why not boost wages, corporate executives? Tax cuts won’t do much to boost the wages of those in the 60 percent middle-income brackets—from $32,000 to $140,000 per year—since they already pay just an average 2.5 percent in income taxes.

Harlan Green © 2017

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Wednesday, November 1, 2017

Increased Growth Ahead, But Watch for Bubbles!

Financial FAQs

Maybe it’s the natural disasters plaguing U.S. Or the fact businesses haven’t been investing in future growth until now. But the times they are a’changing, as GDP grew 3 percent in Q3 for the second quarter in a row.

It’s mainly due to higher consumer spending and higher inventories as businesses see better times ahead. The higher capital investments have boosted manufacturing, and exports have also increased.

Graph: Econoday

What to make of all this in the eighth year of this recovery, and full employment? More automation, for one thing, as businesses have to depend more on robotics and other aids to productivity with the dearth of new workers entering the labor market. Jobs and income are the keys to October's report, says Econoday.
“ The assessment of October's jobs market is unusually favorable with only 17.5 percent of the sample saying jobs are hard to get, which is very low and down 1/2 percentage point from September.”
Graph: Econoday

Consumer confidence is also soaring, with the Conference Board’s index jumping 5.3 points in the headline index to 125.9 which is a 17-year high. Of course that was just before the dot-com bubble burst in 2000, so is it a sign of irrational exuberance?

Nobel economist Robert Shiller—first to coin the term “irrational exuberance”—has lately been warning of a stock bubble.
“…the US stock market today looks a lot like it did at the peaks before most of the country’s 13 previous bear markets,” said Shiller in a recent Project Syndicate column. “This is not to say that a bear market is guaranteed: such episodes are difficult to anticipate, and the next one may still be a long way off. And even if a bear market does arrive, for anyone who does not buy at the market’s peak and sell at the trough, losses tend to be less than 20 percent.“
The Fed is also expected to raise short term rates another one-quarter percent in their December FOMC meeting, and it looks like President Trump is about to appoint another Fed Governor, Jerome Powell, as the next Fed Chairman to take over February 1, when Janet Yellen’s term is over.

The ‘take’ on Powell is that he is well-qualified and likes fewer regulations, which Trump will like.
He also wants to reduce outstanding Federal Reserve holdings of securities more substantially, and according to former Fed Chair Ben Bernanke did not like so much Quantitative Easing that kept interest rates so low for so long. That puts him in the budget deficit hawk camp.

But what really can be done about reducing the budget deficit with the current one-party tax reform debate? Republicans are attempting once again to get around the Democrats and a bipartisan tax bill, as they did with the attempted repeal of Obamacare.

That didn’t work, so why do they believe it will work this time, especially when some cherished tax breaks would have to be eliminated to cover the approximately $1.5 trillion in tax breaks; that might include reducing 401(k) retirement savings’ accounts and eliminating $1.5 trillion in Medicaid and Medicare spending over the next decade?

Stay tuned, but the U.S. can’t function with a one-party system.

Harlan Green © 2017


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Friday, October 27, 2017

Who Needs Tax Cuts?

Popular Economics Weekly

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 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. Q3 GDP growth was just reported today at 3 percent, due to higher consumer spending and Durable Goods orders on hurricane replacement. 

Businesses are already investing in expansion, in other words—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.
Because the budget deficit cannot be increased more then $1.5 trillion in ten years, due to prior budget agreements, spending has to be cut somewhere, and guess where. The just passed House and Senate budget resolution cuts $1trillion from Medicaid, and $500 billion from Medicare.

Guess who is hurt most by those benefit cuts? Trump's lower-income voters in the red states that depend most heavily on  health benefits. So, once again Repubs are attempting to disguise a tax cut for the wealthiest.

A corporate tax cut also benefit the wealthiest, since the top 10 percent of income earners own 80 percent of stocks, which is where most of the benefits from their increased profits will show up.


Top this off with another record for corporate profits, up 7.4 percent in a year, and there is no reason to be cutting their 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

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Wednesday, October 25, 2017

Boom Times for Manufacturing

Popular Economics Weekly

A measure used by economists to track investment, known as core capital orders (minus defense and aircraft), rose 4 percent in the 12 months ended in September. It has risen 1.3 percent for three consecutive months, according to the Commerce Department.

Core orders are spent domestically for the most part, so this is happening just when it’s needed—to rebuild the hurricane and wildfire damaged states of Florida, Texas, California, as well as U.S. Territories of Puerto Rico and the Virgin Islands.

Graph: FRED

It will also boost economic growth, since it boosts labor productivity, one of the two components that determine GDP growth. The other component is population growth, but the U.S. population is barely growing, as is immigration that supplies the majority of new workers.

The main beneficiary of higher capex spending will be manufacturing, which is already showing improvement with a cheaper dollar exchange rate that has boosted exports.


And today we have durable-goods orders that rose 2.2 percent in September, beating forecasts. Durable goods are all goods that last three or more years—including auto vehicles, defense and aircraft. These orders have climbed 7.8 percent in the past year, the fastest pace since early 2012.
“Strength in the manufacturing sample is centered in new orders and employment,” says Econoday. “Of special note are unusual delivery delays, which help lift the composite indexes and are the result of lingering disruptions and stretched workloads following Hurricanes Harvey and Irma.”
So we are seeing effects of the hurricanes in boosting economic activity. The role of capital expenditures is especially important, as it means the replacement of much of our aging infrastructure as well.

And don’t forget at least 1 million motor vehicles were destroyed by the hurricanes that will need to be replaced. But buyers shopping for used replacement vehicles should be aware of the pitfalls of those storm-damaged cars that are put back on the market.

Consumers should take precautions like getting a history of repairs and checking the VIN number in the National Insurance Crime Bureau and National Motor Vehicle Title Information System databases, reports Fortune Magazine. Even without a database, strange stains and smells can be a red flag that a car has weathered a flood. Consumers buy a used car should check for signs of water damage — mineral deposits, mildew and the smell of mold or overpowering scents of cleaning supplies that may be trying to mask it.

Harlan Green © 2017


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Friday, October 20, 2017

Rising Existing-Home Sales Not Enough

WASHINGTON (October 20, 2017) — After three straight monthly declines, existing-home sales slightly reversed course in September, but ongoing supply shortages and recent hurricanes muted overall activity and caused sales to fall back on an annual basis, reports the National Association of Realtors.

There aren’t enough homes for sale, in other words, at a time when many more homes are needed.  The inventory for sale is down to 4.2 months’ supply at the current sales rate. How will all the homes lost in the hurricanes and California wild fires be replaced with such low inventories?

It will take massive help from governments and disaster relief agencies, for starters. The U.S. House has voted $51.8 billion in relief aid to date that the Senate will also have to approve; much of it for replacement housing. But that means mobile homes providing immediate shelter from the approaching winter, as happened in New Orleans with Hurricane Katrina.

It will take much longer to replace those homes destroyed. The ongoing California wildfires have destroyed more than 6,000 homes in Northern California, which is more than half the average total of new homes built in California during ordinary years. And 185,149 homes are estimated to be damaged or destroyed just by Harvey, according to recent data from the Texas Division of Emergency Management.

This will certainly boost the construction industry. But construction also is suffering from a shortage of workers. And affordability is now a problem slowing sales, as housing prices have risen faster than incomes due to the current housing shortage.

Graph: Econoday

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 0.7 percent to a seasonally adjusted annual rate of 5.39 million in September from 5.35 million in August. Last month's sales pace is 1.5 percent below a year ago but is the second slowest over the past year (behind August).
Lawrence Yun, NAR chief economist, says closings mustered a meager gain in September, but declined on an annual basis for the first time in over a year (July 2016; 2.2 percent). “Home sales in recent months remain at their lowest level of the year and are unable to break through, despite considerable buyer interest in most parts of the country,” he said. “Realtors® this fall continue to say the primary impediments stifling sales growth are the same as they have been all year: not enough listings – especially at the lower end of the market – and fast-rising prices that are straining the budgets of prospective buyers.”
Bottom line is that U.S. and state economies will be given a massive boost by the recent disasters. We can really call it a new, New Deal, since governments will have to approve massive spending bills to rebuild as if it were wartime. Much of that spending has to be for modernizing our infrastructure—which includes all the roads, bridges, water systems, and electrical grids destroyed.

And don’t forget the replacement housing needed. We see such spending can and will prolong this recovery another one or two years. Since such massive spending will require bipartisan support, maybe politics can be thrown out the window this time.

Harlan Green © 2017

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

Tuesday, October 17, 2017

Republicans Are Killing Housing

The Mortgage Corner

The Trump administration and Republicans’ anti-immigration policies will kill the housing market. Why? Trump wants to cut immigration quotas by 50 percent when there aren’t enough qualified workers to fill current job openings. And congress can’t agree on anything that gives easier access to citizenship for the foreign-born; which is why there is a housing shortage.

The housing market can’t provide enough housing even for current population growth. Both new and existing-home sales have declined this year because of the lack of housing. Builders and real-estate agents have complained for years about more red tape, tighter lending standards and a scarcity of inexpensive lots to build on.

And builders are now facing an extreme labor shortage. They can’t find enough carpenters, bricklayers and other workers with the needed skills. “Labor and material shortages are holding construction back, and will continue to do so for some time yet,” says Marketwatch, citing economists at Capital Economics.

Graph: FRED

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. 

I said last week the Labor Department reported 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. 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.

Why? There aren’t enough workers to fill current job openings; as I said—and the Trump administration wants to restrict the supply even further in its single-minded pursuit of minority white-nationalist voters?


Economists know that to advance economic growth to say, 3 percent for any length of time, 2.8 million new workers are needed each year, when our domestic population is capable of just 600,000 new adult workers, according to the U.S. Census Bureau. So where are the additional workers to come from if Trump and the Republican congress continue to block a more enlightened immigration policy?

Housing affordability will suffer the most, when household incomes are rising at half the rate of both housing prices and rental rates. It’s a sad fact that 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 Executive Pay Watch, in a report conducted by the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO).

So we are at a crossroads, if we want to provide the necessary housing for our growing population. A more enlightened immigration policy is the first step. And then Republicans should drop their obsession with unnecessary tax cuts and instead focus on that $1 trillion infrastructure bill they’ve talked so much about.  It’s even more necessary because of the horrific hurricanes.

Harlan Green © 2017

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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

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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

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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

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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.
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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

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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


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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

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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

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


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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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