NEWS: Hot Takes
6/23/21 - May New Homes Sales (NHS) fall again, down 5.9 percent from April (April was lower than March), at an annualized rate of 769,000 units. NHS are still 20 percent above May 2020 levels, though affordability remains a problems for the 4th month in a row. The average sales price was $430,600, the median price was $374,400. Mortgage rates remain near historic lows with 30yr mortgage rates ranges from 2.65 - 3.25%. Nearly free money. Still, as prices continue to rise affordability diminishes. Regionally, the South and the West (ex California) led the way, with the Midwest and the Northeast lagging behind.
6/22/21 - About that inflation, excuse me, that transitory inflation we are hearing so much about. To be sure the year-over-year comparisons will be alarming for a couple more months given the drop in the price level in the spring/summer of 2020. So, in terms of the rate of change of inflation, transitory sounds like a reasonable characterization for another month of two. The CPI and PPI release for August, which will be released in mid-September, will give us a sense for exactly just how transitory are these recent high rates of year-over-year inflation. However, take note, in economics we talk about sticky prices downward, and the ratchet effect; once price rise, they don't fall. While the rate of inflation (the percent change in the CPI or PPI index) may fall back towards zero, that only means prices won't be rising as much. This is disinflation, and it is not an uncommon part of our business cycle. Disinflation, a fall in the general overall price level, certainly is. So while the rate of inflation may prove transitory, don't expect prices to actually fall anytime soon, that usually requires a good ole recession.
6/4/21 - Job growth for May disappoints coming out below market expectations as many workers still have an incentive to remain unemployed given the generous supplemental unemployment benefits offered by the Biden administration and several red state governors.
According to the U.S. Bureau of Labor Statistics total nonfarm payroll employment rose by 559,000 in May, and the unemployment rate declined by 0.3 percentage point to 5.8 percent. Notable job gains occurred in leisure and hospitality, in public and private education, and in health care and social assistance. The household survey measures labor force status, including unemployment, by demographic characteristics. The establishment survey measures nonfarm employment, hours, and earnings by industry.
Household Survey Data
In May, the unemployment rate declined by 0.3 percentage point to 5.8 percent, and the number of unemployed persons fell by 496,000 to 9.3 million. These measures are down considerably from their recent highs in April 2020 but remain well above their levels prior to the coronavirus (COVID-19) pandemic (3.5 percent and 5.7 million, respectively, in February 2020). Among the major worker groups, the unemployment rates declined in May for teenagers (9.6 percent), Whites (5.1 percent), and Hispanics (7.3 percent). The jobless rates for adult men (5.9 percent), adult women (5.4 percent), Blacks (9.1 percent), and Asians (5.5 percent) showed little change in May. Among the unemployed, the number of persons on temporary layoff declined by 291,000 to 1.8 million in May. This measure is down considerably from the recent high of 18.0 million in April 2020 but is 1.1 million higher than in February 2020. The number of permanent job losers decreased by 295,000 to 3.2 million in May but is 1.9 million higher than in February 2020. In May, the number of persons jobless less than 5 weeks declined by 391,000 to 2.0 million. The number of long-term unemployed (those jobless for 27 weeks or more) declined by 431,000 to 3.8 million in May but is 2.6 million higher than in February 2020. These long-term unemployed accounted for 40.9 percent of the total unemployed in May. The labor force participation rate was little changed at 61.6 percent in May and has remained within a narrow range of 61.4 percent to 61.7 percent since June 2020. The participation rate is 1.7 percentage points lower than in February 2020. The employment- population ratio, at 58.0 percent, was also little changed in May but is up by 0.6 percentage point since December 2020. However, this measure is 3.1 percentage points below its February 2020 level. (See table A-1.)
Establishment Survey Data
Total nonfarm payroll employment increased by 559,000 in May, following increases of 278,000 in April and 785,000 in March. In May, nonfarm payroll employment is down by 7.6 million, or 5.0 percent, from its pre-pandemic level in February 2020. Notable job gains occurred in leisure and hospitality, in public and private education, and in health care and social assistance in May.
Average hourly earnings for all employees on private nonfarm payrolls increased by 15 cents to $30.33 in May, following an increase of 21 cents in April. Average hourly earnings of private-sector production and nonsupervisory employees rose by 14 cents to $25.60 in May, following an increase of 19 cents in April. The data for the last 2 months suggest that the rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages. However, because average hourly earnings vary widely across industries, the large employment fluctuations since February 2020 complicate the analysis of recent trends in average hourly earnings. (See tables B-3 and B-8.) In May, the average workweek for all employees on private nonfarm payrolls was 34.9 hours for the third month in a row. In manufacturing, the average workweek rose by 0.1 hour to 40.5 hours, and overtime increased by 0.1 hour to 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls declined by 0.1 hour to 34.3 hours.
The number of persons employed part time for economic reasons was essentially unchanged at 5.3 million in May but is 873,000 higher than in February 2020. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs. (See table A-8.) In May, the number of persons not in the labor force who currently want a job was essentially unchanged over the month at 6.6 million but is up by 1.6 million since February 2020. These individuals were not counted as unemployed because they were not actively looking for work during the last 4 weeks or were unavailable to take a job. (See table A-1.)
5/7/21 - April Employment Situation Report was a disappointment across the board led by Non-farm payrolls coming out way below expectations; 226K v 950K expected, and way below the May print of nearly 500K. Jobs openings keep rising. However, generous unemployment benefits, bolstered by federal and state emergency weekly payment increases over $300 per week on top of the ordinary benefits seem to be keeping many potential employees at home rather than apply for work and reengage with the economy.
U3 unemployment rate: 6.1%
U6 unemployment rate: 10.4%
Average Hourly Earnings: up .7%
Average work week: 35 hours
Labor force participation rate: 61.7%
Employment population ratio: 57.9%
5/12/21 - April Consumer Price Index (CPI) spikes higher. The headline inflation number for the month was up .8 percent, up 4.2 percent year-over-year, with the core (ex food & energy) up .9 percent for the month, up 3 percent year-over-year. The year-over-year comparisons are going to be a bit jolting for a couple more months given the huge drop in economic activity in April-May last year keeping inflation capped at that time. Nonetheless, these are worrying inflation data. The Fed is betting this price pressure is transitory related only to the reopening. Expectations of future inflation must be contained in order for the Fed to right. Lumber, used cars, shipping rates, gasoline prices all lead the way to much higher inflation. We haven't seen this much concern about prices since the early 1980's. Then the Fed and policy makers had the courage to induce a recession to wring out inflation, it isn't clear today policy makers have the same courage. This could get messy.