by 1.7 percentage points, net interest costs by 1.9, while discretionary spending falls by 0.6 of a percentage point. Unsustainable.
March 21, 2016 Few Fired
This past week, for the 54th week in a row, fewer than 300,000 persons sought new unemployment benefits, the best such streak since the 17-month period ending 1/5/1974! The current streak just surpassed the 50 week dotcom sub 300,000 streak ending 7/29/2000. Of course, in 1974 the number of working Americans was just 78.1 million while in 2000 it was 132.2 million. Today’s it’s 143.6. A healthy labor market.
March 22, 2016 Record Recoveries
Since the end of WWII, the average recession has lasted 11.1 months and the average recovery, 58.4 months. The Great Recession was 18 months, the longest recession since 1929. The recovery, now in its 81st month, is the 4th longest recovery since recording began in 1854. The longest recovery ever, 120 months! Interestingly, the current bull market is 84 months long, making it the third longest bull market in history.
March 23, 2016 Mortgage Money
Mortgage equity withdrawal as a percentage of disposable personal income peaked at 6 percent in 1985. It then steadily declined, bottoming out at 0 percent in 1994. It then reversed direction, peaking at 9 percent during the three years ending June 2006, an annual amount equal to $900 billion! It then went into freefall, bottoming at -8 percent in late 2010. It’s been rising quite steadily since and is again roughly 0 percent of DPI.
March 24, 2016 Financial Fix
Financial conditions are much better than they were just weeks ago. Equities are up, yield spreads are down, the dollar has weakened and the VIX or “fear gauge” is at its lowest level since August. Risk is suddenly appealing. Should the Fed now raise rates? No, things are better because the Fed doesn’t plan to raise rates much this year. A sudden change in plan will undo the recent improvements.
March 28, 2016 Grudging Growth
Q4/2015 GDP growth was recently revised up to 1.4 percent. The data continue to show an economy being driven primarily by consumer spending on services and secondarily by housing. It’s being held back by business investment, manufacturing, energy, bloated inventories and exports. Business profits continue to shrink but employee compensation was 53.6 percent of GDP in Q4, up from 52.8 percent a year earlier. Q1/2016 GDP growth looks very weak at 1 percent.
March 29, 2016 Fed Financing
The unambiguous upside to quantitative easing is that in 2015, the Fed sent $97.8 billion in profits to the Treasury, surpassing last year’s record of $96.9 billion. These remittances have grown as the Fed’s portfolio of Treasuries and mortgage-backed securities has grown from $1 trillion, before the financial crisis, to $4.5 trillion today. These payments will shrink as the Fed raises short-term rates and eventually shrinks its portfolio.
March 30, 2016 Diminished Domiciles
While inventory of homes is low, commonly used measures such as months of inventory or number of units for sale, severely underestimate the shortage. The number of units for sale divided by the number of households has been flat at 1.7 percent since early 2013, its lowest level ever! During the housing boom it was as high as 3.5 percent. Worse, 1.7 percent is an underestimate as household growth is substantially below trend.
April 4, 2016 Lotsa Labor
Friday’s jobs report showed a solid gain of 215,000 jobs. That said, the unemployment rate ticked up from 4.9 percent to 5 percent because the labor force grew by an even larger 396,000 persons! As a result, the labor force participation rate rose by another 0.1 percent to 63 percent, its best level since 3/2014 and up from a trough of 62.4 percent in 9/2015, a huge increase. Wages rose a nice 2.3 percent Y-o-Y.
April 6, 2016 Poor Profits
While the sagging stock market is the result of many factors, corporate profits haven’t helped. In Q4, depending on how measured, corporate profits declined between 3.6 percent and 15 percent, and in 2015 they ranged from up 3.3 percent to down 5.1 percent. Using the most common definition, corporate profits grew 0.1 percent in 2014 and 0.6 percent in 2013. These flat profits strongly discourage corporate investment in plant and equipment hurting, GDP, wages and productivity.
April 7, 2016 Diverse Delinquencies
Q3 consumer delinquencies rose from a record low of 1.36 percent in Q2 to 1.41 percent. These levels are substantially below the 15-year average of 2.25 percent, a level last seen roughly four years ago. Mobile home loans have the highest delinquency rate at 3.59 percent, followed by home equity lines of credit at 2.91 percent. At the other end, auto loans enjoy the lowest delinquency rate at 0.74 percent, followed by RV loans at 0.95 percent.
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