No Harvey Impact yet but 1st Time Unemployment Insurance Claims Rise

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • There were 236,000 1st time claims for unemployment insurance for the week ended August 27, 1,000 MORE than the previous week;
  • The number of initial claims for the week ended August 19 was UNCHANGED at 232,000;
  • The four-week moving average of first time claims FELL 1,250 to 236,750 or 0.154 percent of total employment;
  • The number of continued claims – reported on a one-week lag – for the week ended August 19 was 1,942,000, a decline of 12,000 from the previous week’s unrevised number;
  • The four-week moving average of continuing claims DROPPED 6,250 to 1,951,500;

Image result for 1st time unemployment insurance claims

The increase in first time claims for unemployment insurance for the week ended August 26, as the Department of Labor reported Thursday is just a tease as to what this report will look like in a few weeks.

If history is any guide, we can probably expect unemployment insurance claims to jump by about 100,000, In 2005, about two weeks after Hurricane Katrina ravaged Louisiana (and, not, internet rumors notwithstanding Barack Obama was not president then), initial claims which had been averaging about 320,000 per week, spiked by 96.000 and then dropped 65,000 two weeks later. Claims returned to their pre-storm average within two months.

President Obama was in the White House when Superstorm Sandy tore up the East Coast in 2012, sending first-time claims up 90,000 two weeks later.

Just as Harvey’s impact on employment will be transitory, so too will be impact of the storm be on gasoline prices, affected because it hit a refinery-rich part of the country. Analysts expect a 15¢ jump in the per gallon price of gasoline in the next couple of weeks but prices should be back to pre-storm levels in a couple of weeks.  Platforms and rigs were shut down in anticipation of the storm, which made landfall late Friday as a Category 4 storm but weakened mid-Saturday into a tropical storm. Following Katrina, gasoline prices shot up 40¢ per gallon within a month but then fell back to below pre-storm levels two months later.

Thursday’s data on claims will have no impact on the Bureau of Labor Statistics’ report Friday on the August labor market. The unemployment rate is expected to remain at 4.3 percent and non-farm payrolls to increase about 182,000 which would be below the July increase of 209,000 and the three-month average increase of 195,000.

Average hourly earnings are expected to increase 6¢ to $26.42 which would compute to a 2.6 percent annual increase and average weekly earnings are expected to slip $3.59 to $905.83 which would be 2.6 percent higher than August 2016.

You can hear Mark Lieberman tomorrow (Friday Sep. 1) at 8:45 am and again at 12:05 pm on POTUS Sirius XM 124 and every Friday at 6:20 am on the Morning Briefing on P.O.T.U.S. radio @sxmpotus, Sirius-XM 124. You can follow him on Twitter at @foxeconomics.

Unemployment Rate Drops to 4.5% in March as Job and Earnings Growth Stall

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • Unemployment rate FELL in March to 4.5 percent, the lowest rate in almost 10 years (May 2007);
  • Payroll jobs INCREASED 98,000 in March, the weakest job growth since last May;
  • Prior month job totals were revised down: February from a gain of 235,000 to a gain of 219,000 and January from a gain of 238,000 to an increase of 216,000 jobs;
  • Private sector payrolls rose 89,000 in March, also the weakest growth since last May;
  • Average weekly hours in March FELL to 34.3, the lowest since last November;
  • Average weekly earnings INCREASED in March to $896.60 — up $1.77 from February but the 2.4 percent year-year growth was slightly weaker than the 2.5 percent annual growth recorded in February;
  • Average hourly earnings ROSE 5¢ in March to $26.14, a 2.7 percent year-year jump; in February average, hourly earnings registered a 2.8 percent year-year improvement;
  • The number of full-time workers INCREASED 326,000 in February; the number of part-time workers ROSE 149,000;
  • Labor force participation rate HELD at 63.0 percent;
  • Employment-Population ratio ROSE to 60.1 percent, the highest level since February 2009;
  • The number of multiple jobholder went UP 138,000; multiple jobholders represent 5.2 percent of all employed individuals, up from 5.1 percent in February;

Image result for employment

Despite the lowest unemployment rate in almost 10 years, this has to be considered a disappointing Employment Situation report, with the weakest job growth in 10 months and downward revisions to the job totals reported for the first two months of the Trump Administration. The revisions to January and February job growth trimmed the number of new jobs by 38,000.

So, what happened?

Some of the changes can be attributed simply to the calendar as the number of retail jobs fell marking the official end of the holiday shopping season. Some too relates to the weather with 6,000 new construction jobs in March, down from the addition of 15,000 in February.

Unusually good winter weather in the Midwest and Northeast probably strengthened job growth in January and February. March was payback time.,

Offsetting the drop in retail jobs, the number of restaurant jobs grew 21,700. Restaurant jobs have been a steady source of job growth having increased for 57 consecutive months. But, those jobs remain among the lowest paying jobs.

The health care sector too remained a strong source of new jobs, adding 16,700 jobs in March, the 54th straight month of job growth. The health care sector, of course, dodged a bullet when the House cancelled a vote on a replacement for the Affordable Care Act. Since the ACA took effect, the number of health care jobs has increased by 1.5 million or just over 39,000 per month.

Wage growth, though up in March appears to be slowing slightly. Coupled with the dip in average weekly hours, it means workers have less, not more, money in their pockets. Indeed, the slight drop in weekly hours is a bad omen for future hiring. An increase in hours would mean employers have to add to staff. In the immediate aftermath of the onset of the Great Recession, hours fell below 34, dropping as low as 33.8.

Average weekly earnings fell in the construction, and manufacturing sectors. The construction sector is one of the highest paying industry sectors with average weekly earnings of $1,039.77, topped only by the utilities sector ($1,5550.86) and the mining and logging sector ($1,262.69). Manufacturing workers earned an average of $864.84 per week in March, down $2.04 from February. Construction worker earnings fell $6.97 a week in March.

The weakness in hours and the mild slowing in wage growth suggest a weaker labor market than we’d like to see but there also seems to be little basis for concern about inflationary pressures.

The overall job growth should be tempered by the increase of 138,000 multiple jobholders.

The drop in the unemployment rate though remains the redeeming factor in this report. The number of persons unemployed fell 326,000 to 7.2 million, the lowest level since September 2007. Delving into that number, the number of individuals unemployed because of layoffs dropped 190,000 in March and the number of individuals unemployed for fewer than five week dropped 232,000. Some of those could have left that bracket and are now unemployed for 5-14 weeks, but that category fell 29,000. Together that suggest that new entrants to the ranks of the unemployed don’t remain there very long.

Unemployment rates for sub-categories also showed improvement. The unemployment rate for blacks dipped to a still high 8.0 percent from 8.1 percent in February and the unemployment rate for Hispanics dropped 0.5 percent to 5.1 percent. Even the teenage unemployment rate was down, dropping 1.3 percentage points to 13.7 percent, the lowest it has been since May 2001 when it stood at 13.4 percent.

Hear Mark Lieberman every Friday morning at 6:20 am on The Morning Briefing on POTUS on Sirius-XM 124.

You can follow Mark Lieberman on Twitter at @foxeconomics.

 

1st Time Jobless Claims Remain Highly Volatile, Falling 10,000 in Last Week

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • 1st time claims for unemployment insurance for the week ended December 3 FELL 10,000 to 258,000;
  • The number of claims for the week ended November 28 was unchanged at 268,000
  • Filings remained under 300,000 for the 92nd straight week, the longest streak since 1970;
  • Four week moving average of first time claims INCREASED 1,000 to 252,500;
  • The four week moving average represented 0.166 percent of total employment, UP .001 percentage points from a week earlier;
  • Continuing claims for the week ended November 28 – reported on a one-week lag – DECREASED 79,000 – largest week-week drop since July 2015 — to 2,005,000;
  • The number of continuing claims for the week ended November 21 was REVISED UP 3,000 to 2,084.000;
  • Four-week moving average of continuing claims FELL 9,500 to 2,028,750;

Image result for unemployment insurance claims

First time claims for unemployment insurance remained extremely volatile as the calendar turned to December, with a five-figure swing for the fifth straight week, according to the Labor Department.

The average change (regardless of direction) for the last five weeks has been 15,400 compared 6,600 for the previous five weeks. To be sure, the net change has been a drop of 7,000 claims over the last five weeks, but the wide swings suggest some instability in labor markets which would call into question the wisdom of tinkering with interest rates in the short term. Nonetheless, “body language” from the Federal Open Market Committee – the federal Reserve Board’s policy-setting arm – suggest the FOMC is poised to lower the target fed funds rate when it convenes next Tuesday. Though widely anticipated, the FOMC action could our a damper on holiday sales. Retailers had been anticipating strong sales, up about 3.6 percent, according to the National Retail Federation (NRF).

The NRF estimated retailers would add between 640,000 and 690,000 jobs to deal with the increased sales volume for the holiday season which, according to NRF, covers all of November and December.

The four week moving average, designed to smooth the volatility of the weekly numbers, is showing less of a swing in the last five weeks ranging from an increase of 1,000 to a drop of 6,000 and a net decline of 5,250 for the period dropping the total to 252,500, 6.7 percent below the level a year ago.

Despite the recent volatility, both initial claims and continuing claims have been on a relatively stable downward trajectory over the past year. Continuing claims, often seen as a surrogate for hiring, are down 10.7 percent from a year ago. The four-week moving average of continuing claims has dropped a more modest7.1 percent.

In raw numbers, continuing claims fell 241,000 in the last year with most of that decline, 137,000, since September 1.

You can hear Mark Lieberman every Friday at 6:20 am on the Morning Briefing on P.O.T.U.S. radio @sxmpotus, Sirius-XM 124. You can follow him on Twitter at @foxeconomics.

1st-time and Continued Unemployment Insurance Claims Jump

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • There were 220,000 1st-time claims for unemployment insurance for the week ended Aug 10, 2019, an INCREASE of9,000from the previous week’s upwardly revised 211,000 (from 209,000);
  • The four-week moving average of initial claims ROSE 1,000 to 213,750;
  • Four -week moving average represented 0.136 percent of employment, up from 0.135 percent the previous week;
  • The number of continued claims – individuals who had been collecting unemployment insurance — reported on a one-week lag, was 1,726,000 for the week ended August 3, UP 39,000 from the previous week’s upwardly REVISED 1,687,000 (from 1,684,000)
  • The four-week moving average of continued claims ROSE 9,250 to 1,697,250;

Trends:

  • First-time claims rose to the highest level since the end of June;
  • The week-week increase in continued claims was the largest in almost six months (up 54,000 for the week ended February 16);
  • For the first time since January 2010, continued claims matched the year-earlier levels; continued claims had been below the year-earlier total for 948 weeks!
  • The four-week moving average of initial claims as a percentage of total employment rose for the first time in three months.

Data Source: Department of Labor  

Image result for unemployment insurance claims

Though one week doesn’t constitute a trend, the combination of revived recession rumors and disappointing news about unemployment claims represents piling on among those who might have anxiety about the economy.

The increase in initial claims could lead to an eventual additional increase in continued claims which in turn points to a hiring slowdown as individuals collecting unemployment insurance are unable to find jobs.

The arithmetic domino effect would show up in data next month in the Employment Situation report for August (to be published September 6). That report includes not only the basic labor force data as well as details about the duration of unemployment and the reason for unemployment. The latter category includes re-entrants to the labor force, essentially individuals who have resumed looking for work, one of the criteria for classification as “unemployed.”

Perhaps the most concerning of the new data points – if it continues – is the jump in continued claims for unemployment insurance because of its relationship to hiring and new job creation.

To the extent recession concerns may be real – and not just a reaction to the inverted yield curve showing short term interest rates higher than long term rates – we could see some cutback in job creation as early as next month. We’ve already seen some tariff impact on hiring with six straight months of retail job cuts. With plans to defer new, higher tariffs until December, any employment-related impact could be deferred.

You can hear Mark Lieberman every Friday at 6:20 am on POTUS, Sirius-XM 124. You can follow him on Twitter at @foxeconomics.

Builder Confidence Edges Up Again in August

By Mark Lieberman

Managing Director and Senior Economist

Data Highlights:

  • Housing Market Index ROSE one point in August to 66 (out of 100);
  • Two of the three index components – outlook for current sales and buyer traffic — IMPROVED by two points each;
  • The outlook for sales six months out FELL 1 point;
  • The outlook for current sales was revised down one point for July;
  • The total index remained down year-year
  • By region, builder confidence ROSE in the Northeast, Midwest, and West and was unchanged in the South.

Trends:

  • The overall Index was down year-year for the tenth straight month
  • The measure of buyer traffic rose to 50, its highest level since October 2018;

Data Source: National Association of Home Builders

Image result for builder confidence

Despite weakness in new home sales and new residential permits and starts, builders remain confident about residential housing markets.

At least that’s what they’re telling the National Association of Home Builders in its monthly three question survey which checks views about the current sales market for new homes, views of the market six months out and the flow of buyer traffic to model homes.

Builder sentiment continues to outpace the reality of weak new home sales, improving again in July although new home sales for May (the last reporting month) fell and new home sales sit at their lowest point of the year.

The builders may be encouraged by continued low mortgage rates as reported by Freddie Mac in its weekly survey. The average rate on a 30-year fixed rate loan, Freddie Mac reported, was 3.60 percent, a drop of 1.34 percentage points since last November. That would reduce the monthly payment on a $300,000 mortgage to $1,363.94 from $1,599.48, savings of $235 per month.

Or, perhaps builders found encouragement in the monthly Employment Situation report for July which reported an increase of 7,000 residential construction jobs in July to the highest level since November 2007, just before the onset of the Great Recession.  

They certainly weren’t responding to the most recent report on new home sales: a seasonally adjusted annualized rate of 646,000, barely ahead of the 644,000 in January. The same report noted the median price of a new home was $310,400 essentially unchanged for $310,500 one year earlier.

New building activity too has slowed. According to government data, new housing permits are down 6.6 percent from a year ago and new housing starts while up from year-earlier levels, have relied on multi-family starts which are up almost 25 percent over the last year.

Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:20 am Eastern Time. Follow Mark Lieberman on Twitter at @ foxeconomics.

Retail Sales UP in July for Fifth Straight Month

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • Retail sales (measured by prices) ROSE a solid 0.7 percent or $3.7 billion in July more than doubling June’s downwardly revised 3.0 percent (from 4.0 percent) gain;
  • Non-store retail (online) sales GREW $1.8 billion or 2.8 percent and accounted for 12.8 percent of all retail activity, up from 12.2 percent a year ago;
  • Gasoline stations INCREASED $754 million or 1.8 percent as gasoline prices ROSE 0.9 percent from June to July;
  • Auto sales FELL $602 million or 0.6 percent in July;
  • Other than autos, the only store categories to show declines in sales were health and personal care which FELL $56 million or 0.2 percent and sporting goods stores at which sales FELL $75 million or 1.1 percent from June;
  • All retail activity was up 3.4 percent year-year in July – matching June — while the Consumer Price Index rose 1.8 percent from July 2018 to July 2019.

Trends:

  • Total retail sales have increased for five straight months, the longest stretch since 2017 when sales were up for seven straight months from June through December;
  • BLS reported the number of retail jobs FELL in July and have fallen for six straight months; The number of retail jobs fell in June to the lowest level since January 2016;

Data source: Census Bureau

Image result for retail sales

Don’t mistake the jump in retail sales as a sign reports of a coming recession might be overblown. The monthly Census Bureau report, which is not adjusted for price changes, is more a gauge of prices, many of which have been rising as a result of the imposition of tariffs on Chinese and other imported goods.

Clearly retailers are continuing to struggle with the Bureau of Labor Statistics reporting a sixth straight monthly decline in retail jobs as they struggle to maintain profit margins strained by the higher wholesale prices due to tariffs.

Most recently, the President said he would delay imposing a new 10 percent tariff on Chinese consumer goods with signs U.S. consumers are footing the bill for the tariffs despite the President’s insistence to the contrary.

The administration said last week it would postpone until December 15 penalties on about 60% of Chinese goods which were supposed to be subject to the higher tariffs September 1. Tariffs were delayed on mobile phones, laptops, video game consoles, some toys, computer monitors, shoes and clothing.

In June, falling gasoline prices gave consumers some extra spending cash but that was not the case in July as gasoline pump prices rose in lockstep with crude oil prices.

The pressures on consumer wallets could be exacerbated by the report real average hourly earnings – earnings adjusted for inflation – fell 0.1 percent in July after growing 0.3 percent in June.

Hear Mark Lieberman every Friday on the Morning Briefing on P.O.T.U.S. radio @sxmpotus, Sirius-XM 124, at 6:20 am Eastern Time. You can follow him on Twitter at @foxeconomics.  

1st-time and Continued Unemployment Insurance Claims Fall…Again

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • There were 209,000 1st-time claims for unemployment insurance for the week ended Aug 3, 2019, a DECREASE of8,000from the previous week’s upwardly revised 217,000 (from 215,000);
  • The four-week moving average of initial claims ROSE 250 to 212,250;
  • Four-week moving average represented 0.135 percent of employment, unchanged from the previous week;
  • The number of continued claims – individuals who had been collecting unemployment insurance — reported on a one-week lag, was 1,684,000 for the week ended July 27, DOWN 15,000 from the previous week’s UNREVISED 1,699,000;
  • The four-week moving average of continued claims FELL 11,000 to 1,687,250;

Trends:

  • The four-week moving average of initial claims rose for the first time in five weeks;
  • The four-week moving average of initial claims as a percentage of total employment fell for the 11th straight week;
  • The four-week moving average of continued claims fell for the third time in the last four weeks;

Data Source: Department of Labor

Image result for unemployment insurance claims

The weekly report on unemployment insurance claims continued to sprinkle good news about the labor market with a low level of new claims. The Job Openings and Labor Turnover Survey earlier this week reaffirmed the trend showing a month-month decline in layoffs and discharges, the fourth in the last six months. Since the beginning of the year, layoffs and discharges have averaged 1,746,000 per month, down 4.1 percent from 1,821,000 per month last year.

At the same time, continued claims for unemployment insurance remained on a downward trajectory, again consistent with other labor department statistics. The continued claims numbers match up with the monthly Employment Situation data showing a steady decline in the number of re-entrants to the labor force classified as unemployed. Coupled with the drip in continued claims, the data on re-entrants suggest individuals having success in securing jobs from unemployment rolls.

At the same, time while the number of individuals unemployed for fewer than five weeks rose in July, that number too has generally been falling, also supporting the low levels of new unemployment insurance claims.

Indeed, the number of individuals unemployed for five weeks or less has averaged 2,123,000 per month this year down almost 4 percent from the same period last year.

You can hear Mark Lieberman every Friday at 6:20 am on POTUS’ Morning Report, Sirisu-XM 124. You can follow him on Twitter at @foxeconomics.

Job Openings, Hiring Slip in June

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • Hiring in June FELL 1.0 percent from May to 5.7 million
  • Job openings at the end of June FELL 0.5 percent to 7.35 million;
  • The ratio of job openings per unemployed EDGED DOWN to 1.23 in June from 1.25 in April.

Trends:

  • Hiring fell for the second straight month for the first time since last November-December;
  • Hiring in 2019 is on pace to slightly exceed 2018 (0.7 percent) while layoffs are on pace to be about 4 percent lower than 2018;
  • Job openings continued an alternating pattern which began in December: falling in even-numbered months and increasing in odd-number months;
  • The ratio of “quits” to layoffs and discharges remained at 2:0 signaling continued confidence in the labor market with workers leaving jobs confident they can be hired elsewhere.

Data Source: Bureau of Labor Statistics

Image result for job openings

Job openings, according to the Bureau of Labor Statistics, fell in most major industry groups in June while unemployment rose as the labor market continues to adjust according to the latest Job Openings and Labor Turnover Survey (JOLTS) report.

Indeed, the ratio of unemployed to job openings – a convenient measure of skills mismatch – fell in only one sector, mining with BLS reporting unemployment of 24,000 compared with 30,000 job openings in June. Mining was the only occupation sector to report a drop in the ration of unemployed to job openings in June.

At the other end of the spectrum, the ratio of unemployed to job opening jumped to 6.1 in June (from 4.6 in May) in the professional and business services sector. Only the trade sector, education/health services, and construction reported rations exceeding 1, meaning more unemployed that job openings.

The mixture is interesting but confirms struggles in the construction and retail trade sectors, both attributable at least in part to the ongoing trade wars sparked by higher US tariffs. Retailers have been especially hard hit and have announced plans this year to close more than 7,500 stores, most of them in discount chains which rely heavily on imported goods.

That said, hiring year-to-date remains robust and on track to exceed 2018 – though barely. Extrapolating JOLTS data suggests 69.3 hires in 2019, up slightly from 68.9 million in 2018. Layoffs and discharges, the extrapolation suggests, will be about 21 million in 2019, down just over 4 percent from the 21.8 million in 2018. That would be the fewest layoffs since 2006, before the 2008 Recession.

You can hear Mark Lieberman on P.O.T.U.S Morning Briefing (Sirius 124) every Friday at 6:20 am Eastern Time. Follow him on Twitter at @foxeconomics.

1st-time Unemployment Insurance Claims Bump Up but Corporate Layoffs Fall

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • There were 215,000 1st-time claims for unemployment insurance for the week ended July 27, 2019, an INCREASE of 8,000from the previous week’s upwardly revised 207,000 (from 206,000);
  • The four-week moving average of initial claims DROPPED 1,750 to 211,500;
  • Four -week moving average represented 0.135 percent of employment, DOWN from the previous week’s 0.136 percent;
  • The number of continued claims – individuals who had been collecting unemployment insurance — reported on a one-week lag, was 1,699,000 for the week ended July 20, UP 22,000 from the previous week’s UPWARDLY REVISED 1,677,000; (from 1,676,000)
  • The four-week moving average of continued claims ROSE 750 to 1,698,250;
  • Outplacement firm Challenger, Gray and Christmas reported US firms announced plans in June to cut 41,977 jobs, DOWN from 58,577 job cut announcements in May.

Trends:

  • The four-week moving average of initial claims as a percentage of total employment fell for the tenth straight week
  • The four-week moving average of initial claims itself fell for the fourth straight week;
  • In the first six months of 2019, US firms announced plans to cut 330,987 jobs, according to Challenger, Gray & Christmas, up from 245,179 cuts announced in the first six months of 2018.

Data Source: Department of LaborChallenger, Gray & Christmas

Image result for layoffs

Despite an increase in 1st-time claims for unemployment insurance, the weekly report from the Department of Labor continued to show a tight labor market. And, a report on corporate job cut plans suggested the good news is likely to continue, despite the warnings from the Federal Open Market Committee in the form of a cut in interest rates, Wednesday.

Though the week-to-week numbers showed a modest increase, the smoothing four-week moving average showed claims continue to fall.

Initial filings rose in only nine states: District of Columbia, Hawaii, Illinois, Iowa, Kansas, Maine, Nevada, Vermont, and Washington, according to the Department of Labor.

The monthly Challenger report indicated the largest share of job cuts in the beleaguered retail sector with announcements year-to-date of plans to eliminate 53,248 jobs, almost one of every six jobs to be cut. (The Challenger tally includes vacant positions, so not all the announced cuts will result in layoffs. Similarly, plans could change in business conditions improve or deteriorate further. Some of the job cuts could be mitigated by employees opting for early retirement.)

The Labor Department report suggests the Bureau of Labor Statistics Employment Situation release Friday could show a further, albeit modest reduction in the unemployment but stronger job gains.

You can hear Mark Lieberman tomorrow, Friday, August 2, at 8:40 am (EDT) on the Morning Briefing on P.O.T.U.S. radio, Sirius-XM 124. You can hear him on other Fridays at 6:20 am on POTUS’ Morning Report. You can follow him on Twitter at @foxeconomics.

FOMC Cuts Fed Funds Rate to 2.00-2.25 percent; First Cut in 10 ½ Years

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • FOMC cut the target Fed Fund rate to 2.00-2.25 percent

Trend:

  • The cut was the first since December 2008
  • The FOMC had held the fed funds rate at 0-0.25 percent from December 2008 through December 2015.
  • After holding rates at near zero from December 2008 through December 15, the FOMC has raised the target rate nine times.

Source: Federal Open Market Committee

Image result for federal open market committee

Despite asserting “that the labor market remains strong and that economic activity has been rising at a moderate rate” the Federal Open Market Committee cut the target fed funds rate Wednesday for the first time in more than 10 years.

The FOMC responded to pressures from President Trump who has been insisting economic growth has been restrained by the FOMC’s interest rate stance. The FOMC has raised the target fed funds rate nine times since December 2015.

The FOMC voted 8-2 to lower rates with only Esther L. George, president of the Kansas City Federal Reserve Bank and Eric S. Rosengren of the Boston Fed dissenting. George and Rosengren, according to the FOMC statement, “preferred at this meeting to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.”

The last report on the nation’s Gross Domestic Product pegged GDP growth in the second quarter at 2.1 percent (annualized), far below the 3 percent-plus growth rate the President had promised during his campaign. GDP has topped 3 percent (annualized) in four of the 10 quarters since President Trump took office.

The FOMC hailed what it described as a strong economy in the statement announcing its rate decision.

“Job gains have been solid, on average, in recent months, and the unemployment rate has remained low,” the Committee said in its statement following a two-day meeting.

The only weakness, the Committee described was business fixed investment.

“Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft,” the FOMC said in its statement. “On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.”

The FOMC operates under a dual mandate: to generate maximum economic growth, generally measured by the unemployment rate, and maintain price stability – inflation.

The FOMC’s rate decision will have little impact on mortgage rates which are generally tied to different interest rate measures but will reduce the prime interest rate, the rate banks charge their best customers. Auto loans and home equity lines of credit are generally tied to the prime which itself is generally three percentage points above the fed funds rate.

The FOMC cited the international economy as justification for its decision to lower the fed funds rate.

“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent,” the Committee said in its statement.

You can hear Mark Lieberman every Friday at 6:20 am on the Morning Briefing on P.O.T.U.S. radio @sxmpotus, Sirius-XM 124. You can follow him on Twitter at @foxeconomics.

Pending Home Sales Index Spurts in June to Near Two-Year High

Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • National Association of Realtors’ May Pending Home Sales Index (PHSI) SHOT UP 2.8 percent in June to 108.3;
  • Year-year the index INCREASED 1.2 percent.

Trends:

  • The pending home sales index reached its highest point since December 2017
  • The Index was up year-year for the first time since December 2017

Data Source: National Association of Realtors (NAR)

Image result for pending home sales

It may be time for realtors to break out the champagne – or at least put some on ice.

After almost two years of struggling sales, the National Association of Realtors reported a sharp increase in its pending home sales index which tracks contracts for sale. The index reached its highest level since December 2017 and the first year-year increase since December 2017.

The increase in the index in June marked the second consecutive monthly gain, a milestone which hasn’t happened in over a year: February-March 2018. The last time the index improved (or failed to drop) for three straight months was October-November-December 2017.

The combination of lower mortgage rates and slower price increases may have worked the magic for the home resale market although last week, the Census Bureau and Department of Housing and Urban Development reported new home sales rose 7.0 percent in June, the strongest month-month gain since January. The government report, like the NAR’s pending home sales data, tracks contracts for sale. The NAR, unlike the government, also reports on closings, but of existing homes.

Existing home sales (closings) fell 1.7 percent in June, two months after the NAR’s PHSI fell 1.5 percent. For May, the NAR reported closings increased 2.9 percent, two months after the PHSI increased 3.9 percent.

The increase in May closings came even after the median price for an existing single-family home rose 4.2 percent to $278,200. In June the median price of an existing single-family home rose again, up 2.7 percent, to $285,700. The median price of an existing single-family home has gone up for five straight months tempered by a drop in the average rate for a 30-year fixed rate loan from 4.37 percent in February to 3.80 in June.

The NAR report suggests closings in July and August will increase, perhaps salvaging what has been a weak year for home sales. The weakness in the housing market was underscored last week when the Census Bureau reported a dip in the homeownership rate, the second consecutive quarterly decline in that measure.

The weaker home sales market has had broader implications. In addition to a slowdown at related retail stores, the sales slump affected seniors who were counting on proceeds from the sale of their homes to fund retirement.

Hear Mark Lieberman every Friday at 6:20 am on POTUS Morning Briefing, Sirius-XM 124. You can follow Mark Lieberman on Twitter at @foxeconomics.

Case Shiller Home Prices Index Increases but Pace Slows

By Mark Lieberman

Managing Director and Senior Economist

Highlights:

  • Case Shiller CoreLogic indices ROSE in May, up 0.5 percent in the 10-city index, 0.6 percent in the 20-city index and 0.8 percent in the national index
  • The price index ROSE in all 20 cities surveyed in May, matching April;
  • Year-year growth for the 10-, 20-city and national indices also ROSE but was the weakest year-year growth in seven years
  • Year-year the price index ROSE in May in all 20 cities surveyed, but the year-year increase was slower in 10 of the 20 cities than it had been in April.

Trends:

  • The price index rose in all four census regions led by a 1.3 percent increase in the Midwest;
  • The May increases were slower than April in 13 cities;
  • The price index rose for the 17th straight month in Miami and ninth straight month in Dallas.

Data Source: S&P Case Shiller/Core Logic

Image result for home prices

Home values rose for the fourth straight month in May according to the Case Shiller Core-Logic Home Price Index but the year-year growth in values continued to slow.

The month-month price gains in May were weaker than April and year-year growth fell to its slowest pace since September 2012. The weak price growth hasn’t contributed to faster home sales however and in fact just the opposite as would-be home buyers perhaps no longer see homes as strong investments.

The slower home sales are a head-scratcher coming as they do when mortgage interest rates are dropping along with prices which combine to lower monthly mortgage payments. According to the weekly Fannie Mae mortgage rate survey, the average rate for a 30-year fixed-rate mortgage was 3.75 percent, essentially the lowest since November 2016 when the rate for a 30-year loan was 3.57 percent. (The rate for a 30-year loan dipped to 3.73 percent for one week, five weeks ago but has been at 3.75 percent for three of the last four weeks.)

The Case Shiller survey covered the same month in which the National Association of Realtors reported the median price of an existing single-family home rose 4.2 percent with a year-year price growth of 4.9 percent, both far in excess of the numbers in the Case Shiller report.

According to the Case Shiller data, prices rose fastest in the Midwest in May, up 1.3 percent, but also rose in the West, 0.8 percent. Prices in the South were up 0.5 percent and, in the Northeast, up 0.3 percent.

The May price increases were led by Minneapolis (up 1.7 percent), Cleveland (up 1.4 percent and Detroit (up 1.2 percent).

Year-year prices were up 6.4 percent in Las Vegas, 5.7 percent in Phoenix and 5.1 percent in Tampa. Prices fell 1.2 percent year-year in Seattle.

Hear Mark Lieberman this Friday on P.O.T.U.S. radio’s Morning Briefing, Sirius-XM 124, at 6:20 am Eastern Time. You can follow Mark Lieberman on Twitter at @foxeconomics.

Homeownership Rate Drops Again in 2Q; Second Straight Quarterly Decline

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • Homeownership rate SLIPPED to 64.1 percent in 2Q 2019 from 64.2 percent in 1Q 2019;
  • The number of homes for sale DROPPED by 46,000 from 1Q 2019 to 2Q 2019
  • Homeownership rate for younger Americans – 35 and under – ROSE to 36.4 percent in 2Q 2019 from 35.4 percent in 1Q 2019, first increase since 3Q 2018
  • 49,000 FEWER households owned homes in 2Q 2019 than in 1Q 2019.

Trends

  • The homeownership rate fell to its lowest level since 3Q 2017 (63.9 percent);
  • Homeownership rate is down 0.2 percent year-year — the first year-year decline since 1Q 2018;
  • Homeownership INCREASED only in the Northeast – to 61.2 percent in 2Q from 60.7 percent in 1Q.

Data Source: Census Bureau

Image result for homeownership

With all home sales remaining slow, according to both the Census Bureau and the National Association of Realtors (NAR), the nation’s homeownership rate fell again in the 2nd quarter to its lowest level in nearly two years.

The rate dropped 0.1 percentage points to 64.1 percent. The last time it was that low was 2Q 2017 when homeownership stood at 63.9 percent. Homeownership peaked in 69.2 percent in 4Q 2004.

Unlike the decline in 1Q which underscored the difficulties faced by younger families in buying homes, the 2Q decline was concentrated among older homeowners.

The homeownership rate for those over 65 fell to 78.0 percent in the second quarter from 78.5 percent in the first quarter and the ownership rate for those 54 to 65 fell to 74.8 percent in 2Q from 76.4 percent in 1Q. Conversely, the homeownership rate for those under 35 rose to 36.4 percent from 35.4 percent, still below a year ago when it was 36.5 percent. The rate for those 35 to 44 fell to 59.4 percent in 1 Q – the lowest level since 4Q 2017 when it was 58.9 percent.

The overall decline is consistent with drops in new and existing home sales. Existing home sales fell 1.7 percent in June and are down 2.0 percent from year-ago levels. While new home sales improved in June, they are off almost 7 percent from March

The total number of owner-occupied homes fell 49,000 in the second quarter, an improvement over the first quarter when owner-occupied home tumbled 797,000. According to Census figures, owner-occupied homes have declined for three straight quarters.

The number of vacant housing units held off the market – presumably because of price declines – increased to 7.7 million in the second quarter, the highest since 2Q 2014 (also 7.7 million).

Hear Mark Lieberman every Friday on the Morning Briefing on P.O.T.U.S. radio, Sirius-XM 124, at 6:20 am Eastern Time. Follow Mark Lieberman on Twitter at @foxeconomics.