Relevant and even prescient commentary on news, politics and the economy.

Gimme Shelter: the rental affordability crisis has worsened  

Gimme Shelter: the rental affordability crisis has worsened

Four years ago HUD warned of “the worst rental affordability crisis ever,” citing statistics that

About half of renters spend more than 30 percent of their income on rent, up from 18 percent a decade ago, according to newly released research by Harvard’s Joint Center for Housing Studies. Twenty-seven  percent of renters are paying more than half of their income on rent.

This is a serious real-world issue. I have been tracking rental vacancies, construction, and rents ever since.  The Q2 2018 report on vacancies and rents was released a few weeks ago, so let’s take an updated look. In this post I will look at four measures:

  • real median asking rent, as calculated quarterly using the Census Bureau’s American Community Survey
  • two rental measures from the monthly CPI reports
  • HUD’s quarterly rental affordability index
  • Rent Cafe’s monthly rental index

As we will see, regardless of which measure used, rent increases continue to outpace worker’s wage growth, meaning the situation is getting worse. Most likely this is a result of increased unaffordability in the housing market, driving potential home buyers to become or remain renters instead.

Real median asking rent

In the second quarter of last year, median asking rents zoomed up over 5% from $864 to $910. In the two quarters since, they have remained at that level:

Here is an updated look at real, inflation adjusted median asking rents. The entires prior to 2009 show the interim high and low values from the previous 20 years. Since 2009, real rents have almost continuously soared — and reached yet another record high in the quarter just ended:

 

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Four measures of wages all show renewed stagnation

Four measures of wages all show renewed stagnation

This is something I haven’t looked at in awhile. Since 2013, I have documented the stagnation vs. growth in average and median wages, for example here and here. I last did this in 2017. So let’s take an updated look.

We have a variety of economic data series to track both average and median wages:

Let’s start with nominal wages.  The first graph below shows the YoY% growth in each of the four measures:

While each is noisy, the overall trends are clear:

  • First, in this cycle as in the last, wage growth declined coming out of recessions, then rose as the expansion continued.
  • Second, by most measures nominal growth has picked up somewhat in the last year.
  • Third, secularly there has been an undeniable slowdown in wage growth, which (while not shown) was 4-6% in the late 1990s peak and 3-4% at the 2000s peak. So far in this expansion it is no better than 2.5%-3%.  I believe this is in part due to how weak the employment situation was for so long into this expansion, but also secularly due to shifts in bargaining power, as employers learn over time that employees can be retained with lower and lower annual increases in compensation.

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Real wages decline YoY, while real aggregate payrolls grow

Real wages decline YoY, while real aggregate payrolls grow

With the consumer price report this morning, let’s conclude this weeklong focus on jobs and wages by updating real average and aggregate wages.

Through July 2018, consumer prices are up 2.9% YoY, while wages for non-managerial workers are up 2.7%. Thus real wages have actually declined YoY:

In the longer view, real wages have actually been flat for nearly 2 1/2 years:

Because employment and hours have increased, however, real *aggregate* wage growth has continued to increase:

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June 2018 JOLTS report evidence of both excellent jobs market and taboo against raising wages

June 2018 JOLTS report evidence of both excellent jobs market and taboo against raising wages

Yesterday’s JOLTS report remained excellent, suffering only in comparison to last month:

  • Hires were just below their all-time high of one month ago
  • Quits were just below their all-time high of one month ago
  • Total separations made a new 17-year high
  • Openings were just below their all-time high of two months ago
  • Layoffs and discharges rose to their average level over the past two years

In short, the JOLTS report for June confirmed the excellent employment report of one month ago.

So let’s update where the report might tell us we are in the cycle, remaining mindful of the fact that we only have 18 years of data.

Let’s start with the simple metric of “hiring leads firing.” Here’s the long term relationship since 2000, quarterly:

Here is the monthly update for the past two years measured YoY:

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How close are we to “full employment”?

How close are we to “full employment”?

As I pointed out Friday, there was a lot of good news underneath the headline jobs gain — primarily in labor force participation and underemployment. So, how close are we to “full employment,” based on the last few expansions?

Let’s start with the simple, straightforward unemployment rate of 3.9%. This is already considerably below the best reading of the 2000s expansion, and only 0.1% above the best reading of the 1990s expansion, which was tied two months ago in May:

But of course that isn’t the end of it. Much attention has been paid to the U-6 underemployment rate, which reached a new expansion low of 7.5%.

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July jobs report: booming jobs market, and a surge in participation continues to depress wage growth  

July jobs report: booming jobs market, and a surge in participation continues to depress wage growth

HEADLINES:

  • +157,000 jobs added
  • U3 unemployment rate down -0.1% from 4.0% to 3.9%
  • U6 underemployment rate down -0.3% from 7.8% to 7.5% (new expansion low)

Here are the headlines on wages and the broader measures of underemployment:

Wages and participation rates

  • Not in Labor Force, but Want a Job Now:  down -95,000 from 5.258 million to 5.163 million
  • Part time for economic reasons: down -176,000 from 4.743 million to 4.567 million (new expansion low)
  • Employment/population ratio ages 25-54: up 0.2% from 79.3% to 79.5% (new expansion high)
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose $.03 from  $22.62 to $22.65, up +2.7% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?  

  • Manufacturing jobs rose +37,000 for an average of +29,000/month in the past year vs. the last seven years of Obama’s presidency in which an average of 10,300 manufacturing jobs were added each month.
  • Coal mining jobs were unchanged for an average of +100/month vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month

May was revised upward by +24,000. June was also revised upward by +35,000, for a net change of +59,000.

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Mortgage rates probably have to top 5% to tip housing into a recession-leading downturn

Mortgage rates probably have to top 5% to tip housing into a recession-leading downturn

I’ve pointed out many times that, generally speaking, mortgage rates lead home sales. It’s not the only thing — demographics certainly plays an important role — but over the long term interest rates have been very important.

I have run the graph comparing mortgage rates to housing permits many times. In the graph below, I’m using a slightly different housing metric — private residential fixed investment as a share of GDP, both nominal (blue) and real (green), current through last Friday’s report on Q2 GDP. Here’s the long term view:

We can see the leading relationship over the large majority of time frames in the last 50 years, with a few notable exceptions: the late 1960s and 1970s *huge* demographic tailwind of Baby Boomers reaching home-buying age, the 2000s housing bubble and bust, and 2014 (mainly due to the Millennial generation tailwind).

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The President of the United States is a Russian asset

The President of the United States is a Russian asset

That the President of the United States is a Russian asset needs to be openly acknowledged. He may be a naive, negligent or unwitting asset, a coerced asset, or a willing and enthusiastic asset, or some combination thereof, but at this point there is no getting around that he is a Russian asset.
My readers who have followed me from progressive blogs presumably have no trouble accepting this.  But I know that I also have many readers from investment or economic sources, many of whom are probably Republicans. To them I ask two simple questions: (1) in what way has he acted in any way inconsistent with being a Russian asset? and (2) if you evaluated him the same way you evaluated SEC and other filings in order to determine whether or not to purchase a stock, to what conclusion would you come?
What possible reason could there be for a President of the United States to insist on meeting the Russian President both without any witnesses in the room, and also no means to verify what was discussed? Why would a President who is known for bombastically unloading on just about everybody else on the planet, refuse to utter, over a period lasting years, a single negative word about one singular matter: the conduct of the Russian state?
In the past week I have only heard three potential arguments against the fact posited by the title of this post.
The first comes from a comment here, which in summary says:

[H]e thinks he’s doing great work; he thinks Putin’s terrific; he thinks this will all be justified as a brilliant move once the nation and the world catches up with his brilliance…and, especially, he thinks he’s enacting his supporters’ wishes, sticking it to the uppity European deadbeats and mending fences with the “real” leaders…..
The fact that he concealed it all from his staff (nobody else in the meeting, etc.) [could just] mean … [that] it was Putin’s idea: let’s be alone “so we can really talk” (with some nods to the dangers of “Fake News”).

But this just means that the President is a naive or negligent asset, in so deep over his head that he does not know he is being played.

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Q2 GDP: likely as good as it is going to get this year

Q2 GDP: likely as good as it is going to get this year

[Note: FRED hasn’t gotten around to updating the GDP data. I’ll update this post once the graphs are available. UPDATE: Posted now.]

This morning’s preliminary reading of Q2 2018 GDP at +4.1% was generally in line with forecasts.  The coincident data, as I’ve reported in my “Weekly Indicators” column, as well as things like industrial production, the regional Fed reports, and real retail sales, have all been very positive for the past few months. So, “hurrah!” for the growth of one to four months ago.

One point widely notied, which I’ll also repeat: exports added about 0.5% more than usual to the GDP number. This was almost certainly producers trying to get ahead of Trump’s trade wars, and will likely subtract an equivalent percentage over the next quarter or two. In other words, GDP ex-frontrunning the trade war was about 3.6% annualized.

But will it last?  As usual, my attention is focused not on where we *are*, or more properly, recently *were*, than where we *will be* in the months and quarters ahead.

There are two leading components of the GDP report: real private residential investment and corporate profits. Because the latter will not be released until the second or third revision of the report, I make use of proprietors’ income as a more timely if less reliable placeholder.

So let’s take a look at each.

Real private residential fixed investment actually declined slightly (blue). Measured by the more precise method of its share of the GDP as a whole (red), residential investment it was even more significant:

According to Prof. Edward Leamer, this typically peaks about 7 quarters before the onset of a recession. As it has not made a new high since five quarters ago, and must be considered a signficant leading indicator of recession at this point, although it is only down about half the percentage from its peak as the least amount prior to a recession (-3% vs. -6% before 2001).

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The US is not in an economic Boom: midyear udpate

The US is not in an economic Boom: midyear udpate

At the beginning of this year I asked: Is the US economy going to enter a Boom in 2018?

To recap, there is no standard definition of a Boom. But in my lifetime there have been two occasions when the “good times” feeling was palpable, and the economy was working extremely well on a very broad basis: the 1960s and the late 1990s tech era. During both times,  employment was rampant and average people felt that their situations were going well.

Back in January I identified five markers that, taken together, marked off the two eras as unique: the low unemployment rate, the duration of a very good rate of growth of industrial production, strong growth in real average and real aggregate hourly wages, and increasing inflation.

Let’s update all of these through midyear.

First, in both the 1960s and late 1990s, the unemployment rate (note that the U6 underemployment rate wasn’t reported in its current configuration until 1994, and so is not helpful), hit 4.5% or below for extended periods of time:

While these weren’t the only two periods of low unemployment, they are among those that stand out.

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