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

Brad DeLong hops aboard the “Employers have a Taboo against raising Wages” bandwagon

Brad DeLong hops aboard the “Employers have a Taboo against raising Wages” bandwagon

For Labor Day Prof. Brad DeLong posted a talk on the implications (or not) of the US being near “full employment.”

The arguments on a few of the pages will be familiar to readers of this blog:

Comments (13) | |

Trump’s base: not the white working class, but white evangelicals — all men and lesser-educated women — who believe the ends justify the means

Trump’s base: not the white working class, but white evangelicals — all men and lesser-educated women — who believe the ends justify the means

Via Digby:
__________________
1. Trump has always been unpopular with college-educated voters

[A] Pew Research assessment … [using a] validated voter survey (they matched voter file with the survey respondents) showed white women narrowly preferring Trump to Clinton by 2 points – 47 percent to 45 percent. … the Pew data suggests white women have always been, at best, ambivalent about Trump.

… Clinton won (white college-educated voters ) voters by 17 points!

… if you compared Trump’s current standing with the Pew data[,] Trump took 38 percent of college-educated voters in 2016, and his current standing with these voters is….37 percent. Their vote preference in 2016 (38 percent Trump to 55 percent Clinton), pretty much mirrors their vote preference for 2018 – 39 percent Republican to 54 percent Democrat.

2. But the biggest determinant is whether a voter is evangelical

Mike Podhorzer, AFL-CIO’s political director, suggests that … [w]hat really distinguishes a Trump-supporting white voter from one who doesn’t isn’t education or even gender, it’s whether or not that voter is evangelical.

 

Comments (2) | |

Comments on personal consumption expenditures: the September anomaly and the Fed’s 2% inflation ceiliing

Comments on personal consumption expenditures: the September anomaly and the Fed’s 2% inflation ceiliing

Let me make a few comments on yesterday’s (Aug. 30) report on personal income and spending. Well, actually, just the spending part for now.

First, there is a long-time relationship going back 60 years in the data whereby the YoY% growth in retail sales is higher in the first part of an economic expansion, and lower in the latter part, compared with wider measures of spending, such as personal consumption expenditures (PCE’s).  In fact, it is so reliable it is one of my “mid-cycle” indicators.

Well, it hasn’t been that way for the past year. Here’s the graph:

YoY retail sales have been higher than PCE’s in the past year — and the YoY growth has been rising. So has the economic cycle been rejuvenated?

Comments (0) | |

Corporate profits after taxes set a new record. But the Fed is worried about wages

Corporate profits after taxes set a new record. But the Fed is worried about wages

Yesterday  (Aug. 29) in the Q2 GDP update corporate profits were reported for the first time.

Since corporate profits are one of four long leading indicators identified by Prof. Geoffrey Moore, I have updated my look at them at Seeking Alpha.

Usual shameless plug: reading this isn’t just educational, it puts a few pennies in my pocket.

But of course corporate profits are a good way to measure how the producer sector is doing compared with ordinary workers. So below is a graph of corporate profits (green), the S&P 500 (blue), average hourly wages for non-managerial workers (dark red), and aggregate wages for all of those workers (light red), since the month Trump took office:

Profits are up over 17% and stock prices up over 22%. Meanwhile average workers’ hourly earnings are up (before inflation) less than 3%, and even in the aggregate are up only 7%.

And the Fed is worried about wage inflation.

Comments (2) | |

House prices continue to rise, exacerbating unaffordability

House prices continue to rise, exacerbating unaffordability

Now that we have both the Case Shiller and FHFA house price reports for June, let’s take a look at how they fit in to the overall market, and in particular on housing affordability.

To begin with, let me repeat the general formula for the housing market:

  • interest rates lead sales
  • sales lead prices
  • prices lead inventory
Turning to the reports, in June, the 20-city Case Shiller house price index rose 0.5% m/m:

House prices are clearly still rising.

 

Comments (1) | |

What the compressed yield curve means for employment

What the compressed yield curve means for employment

Aside from the threat of a recession down the road, is there cause for concern by economic Progressives in the fact that the yield curve has tightened (i.e., the difference in interest rates between long and short term bonds has become very small)?

In a word, Yes.

Four times during the 1980s and 1990s the difference in the interest yield between 2 and 10 year treasury bonds got about as low as it is now (blue in the graphs below). That occurred in 1984, 1986, 1994, and 1998.

Even though on none of those 4 occasions a recession followed, on 3 of 4 of those occasions YoY employment gains (red, divided by 2 for scale) subsequently declined:

In both 1984 and 1994, YoY employment gains peaked within 2 months of the low point in the yield spread. In the 1980s, that decline continued right through and a little beyond the 1986 low in spreads. In both cases YoY gains in employment declined by roughly half. Only in 1998 was there no appreciable effect.

Comments (1) | |

A new risk at the Fed: Donald Trump’s power to fire Fed Governors

A new risk at the Fed: Donald Trump’s power to fire Fed Governors

Calling it “breaking with decades of presidential convention,” the New York Times reported last week on Donald Trump’s open criticism of recent Federal Reserve rate hikes. quoting him as telling donors at a  fund-raiser in the Hamptons:

that he had expected Mr. Powell to adhere to an easy-money monetary policy, by keeping interest rates low, when he nominated Mr. Powell in November to succeed Janet L. Yellen….

On Monday, Mr. Trump complained about the Fed chairman publicly, telling Reuters “I’m not thrilled with his raising of interest rates, no. I’m not thrilled.” Mr. Trump, in an interview, added “I should be given more help by the Fed” through more accomodative monetary policy….

Earlier this summer Trump had told an interviewer on CNBC: “I don’t like all of this work that we’re putting into the economy and then I see rates going up. I am not happy about it.”

Well, if there’s one thing we don’t expect from Donald Trump, it’s breaking conventions, right?

The independence of the Federal Reserve Chair and the other appointed Governors is theoretically protected by 12 U.S.C. Section 247, which provides:

Comments (0) | |

Is the rental vacancy rate a leading signal for the housing market?

Is the rental vacancy rate a leading signal for the housing market?

Here is something I noticed while putting together my piece yesterday on the housing market.

Three of the series — new home sales, existing home sales, and single family starts — all peaked last November:

That made me go back and think about an anomaly I had noticed, but hadn’t figured out, with regard to the rental vacancy rate:

which, according to the graph, peaked in the 3rd Quarter of last year, and has declined since.

It occurred to me that this is probably not a coincidence. If housing unaffordability has become a real constraint for potential buyers, then there should be an increasing number of such buyers who are forced to rent instead — which would drive down the rental vacancy rate.

It also looks like the rental vacancy rate peaked in 1997-98 and early 2004, in advance of the last two cyclical housing peaks, which I suspect is also not a coincidence.

So, is there a leading signal for the housing market in the rental vacancy rate? My preliminary perusal makes me think it’s complicated. I’m chewing it over.

Comments (2) | |

Pew Charitable Trust confirms the “rental (and ownership) affordability crisis”

Pew Charitable Trust confirms the “rental (and ownership) affordability crisis”

In case you thought I was talking through my hat about the general lack of affordability of all types of housing, including both owning and renting, the Pew Charitable Trust has also stepped up with a nearly identical analysis.  Go read the whole thing, but here are a few especially noteworthy excerpts:

[A]ccording to the Harvard Joint Center for Housing Studies[, d]emand for rental properties has increased across age and socio-economic groups since 2008….

In the aftermath of the 2007-09 downturn, [… m]any families struggle to save enough for a down payment or lack a sufficiently strong credit profile to meet the stringent underwriting standards that were put in place in the wake of the crisis. But some renters—even with down payment assistance programs— simply cannot afford the monthly payments for homes that in many areas are commanding prices near those of the 2007 market peak

…. The steadily rising demand for rental properties over the past decade has reduced vacancy rates to near historic lows, fueling a rapid increase in rental market prices that has outpaced household incomes for many families. This imbalance is contributing to high rates of “rent burden” ….  In 2015, 38 percent of all “renter households” were rent burdened, an increase of about 19 percent from 2001.

It’s clear that the very high, and in some cases record cost of new housing has played an important role in the surge of households who rent. Here’s my most recent graph comparing median housing costs with median household income (h/t Political Calculations):

Comments (8) | |