Wage Growth Hits Cycle High

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Today the Bureau of Labor Statistic (BLS) jobs report was released showing a gain of 156,000 jobs with the U.S. unemployment rate standing at 4.7%.  Additionally, the U.S. hit a cycle  high in hourly average earnings, which increased 2.9%, year over year.

Payroll employment rises by 156,000 in December; unemployment rate changes little (4.7%)

Now standing at 75 consecutive months of job growth, we are experiencing the longest streak of job growth in history.

75… As in 75 consecutive months of jobs growth, by far the longest streak in history.

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U.S. economy has added jobs for 75 straight months, shattering the previous record of 48 months in the late 1980s.

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From Calculated Risk:
http://www.calculatedriskblog.com/2017/01/december-employment-report-156000-jobs.html

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For the last 2 years, I have reduced my monthly job creation number predictions.  For 2017, I have done so again. I am predicting 140K-170K monthly prints for 2017. Wage growth has hit a cycle high showing the tighter labor force market.

Compelling signals wage pressures are intensifying support the case for more Fed tightening later this year, assuming no Trump policy errors

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US wage pressures likely to continue intensifying. When quits go up, wage pressures tend to follow

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Since the end of 2012, real wages for non-managerial workers have grown nearly 18 times faster than they did from 1980 to 2007.

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A good ‘follow” on twitter:

One last time before Obama leaves office: Nearly all the employment growth in the recovery has been full-time.

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For 2017
, wage growth numbers will be more indicative of the health of the economy than the nominal prints each month. ECI wage inflation is running at 3.9% and over 4% for job switchers. These are the factors that could influence Fed policy at this stage of the economic  cycle.

https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx?panel=1
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One last word of advice to the American Bears, who have made many, simply silly predictions in this cycle, demonstrating their egregious lack of understanding of how demographics effect the economy: –Brush up on U.S. demographics, my friends,  before President Donald Trump rips you a new one on twitter. 

#USA

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

2017 Housing & Economic Predictions

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Overview of 2016

2016 started with the worst stock market performance ever, falling oil prices, dropping bond yields  and cheers from the American bears anticipating their long-hoped-for recession.  But with the closed of 2016, we see that our American bears are grievously disappointed once again; their doomsday expectations not realized. Instead, the U.S. is enjoying job openings at an all time high, a 43 year low in unemployment claims, and slow and steady growth in the housing industry.

The rise in the U.S. dollar did impact manufacturing which has been struggling but oil prices rose and rig counts, and indicator of stronger oil prices, started to grow again slowly.

Housing inventory levels didn’t dampen homes sales as both existing and new home sales hit cycle highs. Home prices, too, continued to grow. A down trend in multifamily construction affected housing starts but losses in this sector were partially made up for with growth in starts for single family residences, suggesting expectations for more home buyers and fewer renters.

The 10 year yield defied those who said rates would go only up by hitting a cycle low due to Brexit.

Despite the rocky start, 2016 was a decent year in terms of U.S. economics, but there are changes in the wind as we  blindly lurch forward into 2017.
The first unknown we must face in 2017 is the big elephant in the room, pun intended. I am not one who believes that Presidents and their policies are strong influencers of economic cycles.  Generally speaking, a U.S. president doesn’t have the singular power to change a behemoth economy like that of the U.S.  He or she would need to enlist a concerted effort on the part of Congress and the Fed in order to have much effect. Even with that, the first year of the  administration isn’t enough time to really make an impact. Demographics, inflation and over investment  in key sectors are the variables that can change an economic cycle.

Predictions for 2017

1. Mortgage Rates and the 10 Year Yield

For the past few years I have stayed true to my channel call for the b0nd market ten-year yield to be between 1.60 -3%.  My prediction article for last year included a statement that the 10-year would have a 1 handle again even with a fed rate hike.

https://loganmohtashami.com/2015/12/28/2016-housing-economic-predictions/

The only thing that has changed in this cycle is that inflation expectations are picking up. I predict that headline year-over-year inflation numbers will look stronger in 2017 due to the pick up in oil prices. The 10-year yield has twice moved from the 1.60% to 2.50%-3%, once  in 2013 and again in 2015.  Also in two occasions in this economic cycle an economic event in Europe resulted in a drop in the yield to under 1.60%. The Spanish default fear trade in 2012 drove yields to the 1.36% level and Brexit resulted in a new low for 2016 of 1.31% . For 2017, I am sticking to my call that the 10-year yield will channel between 1.60% to 3%.  Yes, I do expect to see a 1% handle again. You may get a short term breach of over 3% if a headline risk drives algorithm selling in the bond market – but again,if it occurs it will be short lived. Mortgages rates again stick in the 3.5% – 4.5% range for most of the year and anything above 4.5% or a 10 year above 3% should be short lived.

Inflation is low and there are trillions of bond yields still at negative rates so the U.S. market can’t deviate too much from those levels. If world trade really picks up, you may see the 10-year yield rise higher, however the strong dollar will keep this in check.  Because  CPI and PCE inflation are higher than they were in the early part of 2015,  one can make a case that the  10-year yield should be higher, but global yields are keeping this in check.  We cannot deviate too much from these global yields  as Germany and Japan still have negative yields. Therefore, I will stick with my channel of 1.60- 3%, with headline risk breaking from those ranges, short-term.

From Fred:

https://fred.stlouisfed.org/series/DGS10

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2. Home Prices

Home prices still have legs to go higher in 2017.  This is due more to supply then demand.This cycle has demonstrated that you don’t need  strong demand for home prices to rise. Millions of people buy homes every year and this cycle has had the weakest demand with the lowest interest rates ever.  But home prices continue to rise due to low inventory. For many years I have been stressing that the U.S.housing market doesn’t “naturally” support  6 months of inventory.  This has been true of the market since post- 1996 outside the housing bust years of 2006-2011. With this in mind, home prices should continue to rise until a job loss recession.  I predict growth of 1%-4% in home prices for 2017.

Remember, inventory fell in 2016 and home sales still hit a cycle high. Higher home prices did not bring more inventory into the market, a lot owners still did not have enough equity to move up. We also have millions of rental housing and booming rental demand still keeping those homes in a rental status. Don’t look for inventory to move too much either way because housing affordability issues are keeping both would-be buyers and sellers where they are.  The tenure of living in the same home hit another all time high in 2016.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/12/real-prices-and-price-to-rent-ratio-in.html
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3. Existing Home Sales

For 2016, the high-end of my sales target for existing homes was 5.43 million. We are roughly at that exact level for total existing home sale for 2016 with one more report left. We saw growth in mortgage demand and a decline in the number of cash buyers. This trend is positive for future existing home sales. Even though total growth wasn’t strong in 2016, the internal data for demand in this sector was the best in cycle. We saw a growing number of mortgage buyers along with a falling number of cash buyers, in a year  that saw total growth in sales.  Mortgage rates are higher and we have had another year of price gains. Therefore, I  expect 2017 to look much like 2016 in terms of existing home sales. We will eventually see a push in demand driven by changes in demographics but that is still a few years away.  For 2017, I predict existing home sales to come in around 5.15 to 5.45 million. Even if 2017 finishes with negative growth, this will not be cause to worry. Our path is slow until demographics get better.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/12/21/existing-home-sales-continue-to-climb

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4.  New Home Sales

For me,  new home sales are the most interesting economic sector for 2017. For 2016,  I predicted growth of 4%-8%   unless the median price fell or goes no where to stimulate even better growth.  The median new home price hasn’t done much in the last two years,  indicating that builders were offering some smaller, more affordable home – a bullish trend.

From Fred:
https://fred.stlouisfed.org/graph/?g=ccKF&utm
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However, higher mortgage rates do impact new home sales as this sector is heavily reliant  on mortgage buyers.   I expect the higher, 4.5% plus mortgage rates will impact growth to a degree  in 2017. But since the builders are now providing smaller homes in the mix,  the downside risk due to higher rates is somewhat limited. Unlike 2013 and 2014, when builders seemed to be in a competition for who could offer the biggest homes, builders are now offering  more options which is helping total sales. If this trend of offering more affordable homes in the mix doesn’t continue in 2017,  then we are at risk for negative or very little growth in this sector, even considering the low number of total new homes sale.  Remember we had only 560K-570K in new home sales in the 2016 with a long economic expansion, sales are still very low  historically. For 2017, I predict 4%-7% growth, if the positive trend of builders offering smaller homes continue then we can have much more growth in sales in 2017.

From Census:
http://www.census.gov/construction/nrs/pdf/newressales.pdf

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5. Housing Starts

In 2016, the trend of slow and steady growth in housing starts continued. Multifamily construction  declined but we saw positive growth in single family residences.  Unlike most people I believe the trend of slow and steady growth was not only warranted but smart on the builders part. We have experienced a long economic expansion but new home sales aren’t much higher than what we saw during the recessions of the past few decades. It must be frustrating for the analysts who expected housing starts to blow up to the 50 year average. As it stands  we don’t have the demographics to support that type of growth. Instead, expect slow and steady growth in starts with single family homes making up most of the growth.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/12/housing-starts-decreased-to-1090.html

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6. Economics

in 2016, I predicted 1.9%-2.3% growth in GDP  and monthly job creation numbers falling  to 190K-205K a year. Those predictions were largely realized in 2016, even if growth for Q4 ends up being higher than anticipated. JOLTS ( job openings) hit an all time high in 2016, with 5,900,000 openings  and unemployment claims  stayed below 300,000 the entire year. The labor market is getting tight. The ECI wage index is at a cycle high at 3.9% and over 4% for job switchers, so don’t expect 300K-400K job gains every month in 2017. In fact, for 2017 I am lowering my job creation numbers again ( 3rd straight year of decline) to adjust for tightening of the labor market leading to a lack of labor force growth. We are in the early stages of a shift in demographics, when a massive group of ages 21-26, will enter the prime age labor force. This should add some much needed labor into the mix. However, look for job creation numbers monthly to come down to 140K-170K a month ,to account for labor force growth. I am still in the 1.9%-2.3% GDP camp.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/12/23/visualizing-gdp-an-inside-look-at-the-q3-third-estimate

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7. Recession Watch

I recently joked on a  Facebook live that once President Trump got in the office a lot of my fellow conservatives would change their bearish outlook on the American economy to a more sunny, bullish one before any new legislation even got passed.  It was shocking (not!) that is exactly what has happened.  As a prime example,  Harry Dent took back his weekly claim of  the Dow going to 6,000. I would like to suggest that we look a data rather then ideology to predict whether or not we should expect a recession.

For those who agree, here are some things to look for:

A.Is there over investment in a key economic sector of the economy such as housing or the stock market?  Over-investment is necessary in order to prime a recession.  Unless you scale the heights you cannot take a great fall.
B. Are leading economic indicator falling for 4-6 months straight?  A dip for one or two month does not a recession make.A sustained trend is needed to indicate a recession rather than a temporary correction.
C. Have unemployment claims gone over 323K on the 4 week moving average?
D. Has the Federal Reserve taken steps to fight inflation?

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/12/23/conference-board-leading-economic-index-flat-in-november

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Since 2009 we haven’t seen any of the above indicators and unemployment claims has had a streak of 95 weeks under 300K.   For 2017 we are safe. Oil prices have gone up from the lows of 2016, PMI numbers are looking better and world trade is picking up. The dollar is on the verge of making an epic break out.  If it breaks over 106 – 108 then manufacturing will get hit again but for now the dollar commodity relationship has calmed down from it’s initial big impact in 2015.

Trump and the Economy

As I stated earlier, I believe that demographics and inflation have a greater effect on the economy then any sitting president.  I am not concerned that Trump will cause rising mortgage rates and bond yields  or start a trade war in 2017. President elect Trump may make some deals to keep a few companies from moving jobs overseas,  but to date he hasn’t threatened tax penalties for those who already have factories in other countries. I go into more detail on the potential effects of the Trump presidency on manufacturing in a previous article and will not reiterate those points here.

https://loganmohtashami.com/2016/12/09/manufacturing-under-president-donald-trump/

Regarding infrastructure expenditures and tax reform I expect both to be fully implemented in 2018.  I expect President Trump and congress to aggressively attack or dismantle the Affordable Healthcare Act, but have no expectation of an agreement for some other plan to take its place.

2017 should be an interesting year because there is a risk that both the U.S. dollar and the 10-year yield could go higher –leading to problems in manufacturing and housing.  I would keep my eye out for those two variables. On the positive side, continued economic weakness in China, Japan and Europe still will not have the dampening power  to put the U.S. into recession as many have said over the last few years. This is America folks, not some 3rd world country with a devaluing currency leading to massive inflation.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

2016 New Home Sales Report Card

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Today the Census Bureau reported that 592K new homes sold in November 2016. Sales for the previous month were revised downward to 563K.

“Sales of new single-family houses in November 2016 were at a seasonally adjusted annual rate of 592,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.2 percent (±14.1%)* above the revised October rate of 563,000 and is 16.5 percent (±19.3%)* above the November 2015 estimate of 508,000.”

Sales of new single-fam houses in November 2016 were $592K (SAAR), up 5.2 percent (+/- 14.1%)* from October.

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For 2016,my outlook was that new home sales would grow 4%-8% but if median new home sales prices don’t go anywhere, much more growth could be had.  This is exactly what has been happening for some time now. This is a very bullish data, as it implies more smaller priced homes are coming into the mix. For 2015 and 2016 this has been my main theme for new home sales growth and it has played out very nicely.

From Doug Short:

https://www.advisorperspectives.com/dshort/updates/2016/12/23/november-new-home-sales-up-5-2-mom-surprises-expectations

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Overall I give New Homes Sales for 2016 a grade of B 85%. We saw both growth in sales numbers and a fall in the median sales price. However, as always with new home sales,  a historical perspective is needed to understand the data. The growth in this cycle is still the weakest ever recorded in U.S. history. We are seeing growth because previous years sales were so low.  Slow and steady growth was my call for all these years.  If we start a year with 675K-775K in sales then we can claim that the low bar is done with.  We are still 2-3 years away from that reality, at best.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/12/23/november-new-home-sales-up-5-2-mom-surprises-expectations
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Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

2016 Existing Home Sales Report Card: Death Of The Low Inventory Myth

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Today the National Association of Realtors released its monthly existing home sales report,   Sales of existing homes were 5.61 million, the highest number of sales since February of 2007.

https://www.nar.realtor/news-releases/2016/12/existing-home-sales-forge-ahead-in-november

Total existing-home sales rose 0.7% to 5.61 million in November from 5.57 million in October.

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If you follow housing, you  probably have heard that low inventory is holding housing demand back.  This is a curious conclusion  when you consider that inventory levels are lower in 2016 but home sales are at cycle highs.

Unsold inventory is at a 4.0-month supply at the current sales pace, which is down from 4.3 months in October.

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If you take a historical view of the data you will see that we had lower demand back in 2014 (when existing homes sales went negative year over year) and inventory was higher.

From Fred
https://fred.stlouisfed.org/series/HOSSUPUSM673N

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As I have stated for years now, after 1996, when home prices deviated from historical norms, the U.S. hasn’t had a natural 6 month supply of  inventory, but monthly supply is still higher now than in the previous cycle.

From Fred
https://fred.stlouisfed.org/series/MSACSR

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Today, we are back to 1998 levels on the Mortgage purchase applications, so although inventory is low, it is sufficient for the current demand.   If anyone uses the word strong for housing, show them the chart below.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/12/mba-mortgage-applications-increase-in.html

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I give Existing Home Sales for 2016 an overall grade of  B+ 88% .

My prediction for total existing home sales was 5.43 million on the high end, with rising mortgage buyers and falling cash buyers. This is what happened in 2016. 2016 has the best internal demand data for the cycle, with cash buyers at the lowest levels of the cycle and mortgage buyers at the highest.

First-time buyers were 32% in November; Investors were 12%; All-cash sales were 21%; Distressed sales were 6%.

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Make no mistake, housing demand in general for 2016 has been very light especially considering that we are in the 8th year of the cycle with rates below 5% since early 2011. If it wasn’t for the above historical high levels of cash buyers in this cycle, existing home sales wouldn’t have too many prints over 4.5 million. By years 2020-2024 you will see better demand from mortgage buyers.  As depicted in the chart below,  since 1999 there is plenty of inventory for rising sales.  We just happen to be  “demand light”  in this cycle.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/12/21/existing-home-sales-continue-to-climb

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Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

2016 Housing Starts Report Card

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Today, the Census Bureau released housing starts data for the month of November.  Starts showed an expected a decline from a hot print in October. Revisions were positive in previous month.

Housing starts in November 2016 were 1.090M (SAAR), 18.7 percent (+/- 6.7%)* below the October 2016 estimate.
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A long standing thesis of mine has been that housing starts were going to grow much slower than what the analyst predicted years ago. Because we are recovering from the lowest levels in starts ever recorded in U.S. history, I did not expect, and we are not experiences, a huge rebound in starts.   This is why:  we are recovering from an over investment  cycle fueled by speculation demand  that was financed with exotic debt that did not allow for a buildup  equity.  Then we moved into a light demographic patch with a massive bolus of 17-29 year olds who were too young to enter  the housing market.  Then, we got rid of the exotic loans that were fueling the boom. With demographics not favorable to home purchasing, current homeowners low on equity and no more exotic debt to fuel speculation purchases, it makes 100% sense to me why builders aren’t building  more homes.  The demand is not there.  I give them credit for not adding more supply to a low demand market.  Currently the monthly supply for new homes like existing homes is higher in 2012-2016 period than any period from 1999-2005. We don’t need more inventory.

I discuss this more in a previously published article:

https://loganmohtashami.com/2016/05/22/demographics-housing-starts/

The grade I give for new home construction in 2016 is a B (83%).  Total growth wasn’t great but single family growth is respectful and the  and the boom in the rate ofgrowth for multifamily  units (i.e. rental housing) has ended.

Single family growth year to date 9.6%
Multifamily growth year to date is -4.6%

From Calculated Risk:
http://www.calculatedriskblog.com/2016/12/housing-starts-decreased-to-1090.html

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Slow and steady growth, is the reality of this housing market Anybody that tells you this is a strong housing cycle needs to keep the numbers in historical perspective. The lukewarm demand has nothing to do with tight lending.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/12/16/new-residential-housing-starts-in-november-disappoint-expectations

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Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

Manufacturing Under President Donald Trump

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President Elect Trump was elected on the thesis that he would bring back manufacturing jobs to the U.S. and stop them from leaving.  Before we can gauge the future success or failure of this proposed  initiative we need to understand the current landscape for manufacturing jobs in the country.

The first myth that needs to be busted is that the US doesn’t make anything anymore. Our manufacturing output is the highest it’s ever been.  While it is true that China displaced the US as the largest manufacturing nation in 2010, the US has outperformed most other wealthy countries in the growth of “value added” which is a measure of the economic contribution of manufactures  in the design, assembly and marketing of the product.

From Fred:
https://fred.stlouisfed.org/series/OUTMS

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While our manufacturing output has been stellar, we have seen a downshift in employment that started decades ago.   This was due to displacement technologies that the movement of manufacturing to areas with cheaper labor to create better profit margins.

From Fred:
https://fred.stlouisfed.org/series/MANEMP

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When China entered the World Trade Organization,  the trade balance got bigger and manufacturing employment fell in the U.S.  Advances in technology and cheaper labor allow for lower prices and better profit margins. This is a price we do pay for living in a capitalist, shareholder nation.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/12/trade-deficit-at-426-billion-in-october.html
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The Census Bureau shows us that even though manufacturing is the 4th biggest employment sector in the U.S. it is now less than 9% of the total work force.

http://www.census.gov/library/visualizations/2016/comm/manufacturing_day2016.html
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Employment in manufacturing  has been falling while output is growing.  A lot  of the productivity gains have come in the manufacturing sector, and while this is great for output it impacts total employment.

From Fred:
https://fredblog.stlouisfed.org/2016/05/manufacturing-up-down/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog
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From Brooking:

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Will we really go into a trade war with China? I don’t believe Trump will start a trade war because while near 48% of the US population are workers, 100% of them are consumers and the US is a consumption based economy.  Consumers will be negatively affected by a trade war and that will impact the economy, even if it results in some gains in manufacturing. So far President Elect Trump has not talked about taxing companies who are headquartered in the U.S. but do manufacturing in other countries. He has talked about making the U.S. more business friendly, and taxing current manufacturing plants seems to be in direct conflict with this.

So, let’s be realistic.  Regardless of who is president, we cannot expect to gain 5-9 million manufacturing jobs in the next 4-8 years. A more realistic scenario is that while output may continue to grow with future advances in technology, jobs in this sector will likely continue to shrink, stay flat or at best grow slowly against population growth.

 

The strong dollar, too puts limits on manufacturing growth expectations.  With a much stronger dollar, oil and commodities will get hit. So much of the world imports follow oil prices.

Another “must-follow” on twitter:

 

Higher oil prices = positive (!) for US manufacturing activity. Goods news ahead if oil prices continue rising

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An infrastructure bill could do more for employment in the short term then dithering around the edges of the manufacturing sector by passing out favors to some companies that promise to keep jobs in America while threatening punishment on others.   Steve Bannon’s  trillion dollar infrastructure plan actually makes sense  if we can find workers that are capable to do this type work.   Last I heard we were planning on deporting some of those people. There is a big difference  for economic output between hiring existing working crews to work than hiring new people who don’t have jobs. The job openings for construction jobs is growing every year with hours worked being at all time highs for a reason. This is a reason why I like Bannon’s  go big thesis to make sure we target areas  of high unemployment of men of all ages. It might be wishful thinking with unemployment claims low and job openings above 5.5 million but one can hope.

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I hope this article gives you some perspective on the state of manufacturing in America. We have new President and we should hope for his success, as his success means America is doing great.

On another note, my readers and followers on social media know my love hate relationship with the Anti American bears. These are people who call for the collapse of America every year with worthless economic rants.  I hate smoking, but every 15 years I am going to pull out a cigar and take a photo of me smoking it,   to make a point that America hasn’t collapsed yet,  like the extreme left and right talk about every day. The stock markets are at all time highs and we still have 74 straight months of job gains. Recessions come and go but 24/7 bears always stay 24/7 bears ( Hence the 24 hour fitness shirt for you)

Merry Christmas Bears !!!!

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Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

U.S. Job Market Nearing Full Employment

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Today the B.L.S. job report came out showing a gain of 176,000 jobs with the U.S. unemployment rate standing at 4.6% and a dip in hourly average earnings to 2.5%

Unemployment rate declines to 4.6% in November; payroll employment increases by 178,000

Sometimes numbers and charts can say more than anything written. For this article I just want the Anti American Bears, Zero Hedge,  Gold bugs and all economic cult groups from the left and right to just see this, because you all failed.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/12/02/november-jobs-report-lowest-unemployment-rate-since-august-2007

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Part-time jobs ticked up in November, but overall, employment growth in recovery has been almost all full-time.

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From Calculated Risk:
http://www.calculatedriskblog.com/2016/12/november-employment-report-178000-jobs.html

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From Doug Short: 

https://www.advisorperspectives.com/dshort/updates/2016/12/01/weekly-unemployment-claims-up-17k-worse-than-forecast
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claims

74… As in 74 consecutive months of jobs growth, by far the longest streak in history.

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From Doug Short
https://www.advisorperspectives.com/dshort/updates/2016/11/08/job-openings-labor-turnover-clues-to-the-business-cycle

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To give a quick recap of 2016,  we have seen the longest job expansion streak ever at 74 months and job openings have  had the highest print ever recorded in U.S. history at 5,900,000 in all sectors of the U.S.  Unemployment claims have hit a 43 year low even with the oil crash and weakness in Europe, Japan, South America, Russia and China and the number of total and full time year round workers grew.

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I understand why the anti-America bears cry wolf everyday:  The nature of man is to oppose any economic reality when they’re not in power. Look for my fellow conservatives, starting next year for 4 years,  to not care about labor participation rates.  Look for the  Zero Hedge Gold Bugs to change their tune regarding  the mystical 95 million people out of work.  I also caution my liberals friends not to over react to a Trump Presidency by predicting doom and gloom, just like conservatives have done over the last 8 years. Both sides play this game and neither seems concerned with reality.

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Economic cycles come and go and we will have recessions. It’s all part of the economic process.  The take home message for both sides is that we are  living in the Greatest Country in the History of the world.

usa-gdp-per-capita-historyz

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

New Home Sales Still Showing Growth

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Today the Census Bureau reported that 563K new homes sold in October 2016. Sales for the previous month were revised downward to 574K.

http://www.census.gov/construction/nrs/pdf/newressales.pdf

“Sales of new single-family houses in October 2016 were at a seasonally adjusted annual rate of 563,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.9 percent below the revised September rate of 574,000, but is 17.8 percent above the October 2015 estimate of 478,000”
emphasis added

Sales of new single-family houses in October 2016 were 563K (SAAR) down 1.9% (+/- 13.1%)* from September 2016.

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I  predicted for 4%-8% growth in new home sales for 2016 and higher sales if the median home price fell or stayed flat.  The report for October 2016  shows a rise in the median price from the lows of the year.  But the median home price, in general has remained stable for the last twelve months. This can be viewed as a bullish factor for new home sales going forward because it means more smaller size homes are part of the sales mix.

From Doug Short
https://www.advisorperspectives.com/dshort/updates/2016/11/23/october-new-home-sales-down-1-9-mom-new-median-price-at-304-5k

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But new homes are still expensive, compared to existing inventory and that is one of the factors that is preventing stronger demand in this sector. And this will just get worse  with higher mortgage rates.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/11/23/october-new-home-sales-down-1-9-mom-new-median-price-at-304-5k

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Keep your eye on new homes sales if  mortgage rates hit 4.5%. In 2014, a rise in interest rates to 4.5% was followed by the biggest miss in new home sales estimates that I have ever seen in my 20 years in finance. And,  that was working from a low 400K level  in sales.  The cycle is older now, demographics are getting better  and we are still working from historical low levels in new home sales.

Still, 2016 was a growth year for new home sales.

From Calculated Risk:

http://www.calculatedriskblog.com/2016/11/a-few-comments-on-october-new-home-sales.html

new-home-sales-growth

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

Bloomberg Financial Interview: Low Inventory Myth Crushed By Existing Home Sales

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Today I gave a interview on Bloomberg Financial to talk about existing home sales and the state of the U.S. housing market.

My portion starts at the 22 minute mark.

http://www.bloomberg.com/news/audio/2016-11-22/p-l-how-do-we-replace-obamacare-with-something-that-works

In the interview I stressed the fact that low inventory and tight lending are not  the causes of the soft demand in housing.  Existing home sales hit cycle highs today, inventory is down year over year but mortgage purchase application are at cycle highs, back to 1998 levels. Move up buying is limited due to affordability, but there are plenty of homes out there to buy.   This article provides more background on this economic dynamic:

https://loganmohtashami.com/2016/04/08/low-housing-inventory-lie-still-lives-on/

A. Existing Home Sales cycle high

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/11/22/existing-home-sales-jump-again-in-october

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B. Mortgage demand is at cycle highs, back to only 1998 levels.

From Calculated Risk: 
http://www.calculatedriskblog.com/2016/11/mba-mortgage-applications-decrease-in_16.html

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The Months of Supply is higher now from 2012-2016 than in any period 1999-2005. However, mortgage demand has only hit 1998 levels.  If we had more demand we would have more supply in an up cycle, so it might take a U.S. recession to get us to over 6 months supply. This cycle is very long.  By mid-2019 we will have experienced a record in terms of length of expansion.

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Unsold inventory is at a 4.3-month supply at the current sales pace, which is down from 4.4 months in September.

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First time we hit 6 months supply post 1996 when prices started to deviate from historical norms was February of 2006.  This was at the peak of  speculation demand and the start of the housing bust.  We are not a natural 6 month inventory country, post 1996.

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Housing has changed since  1996 due to price increases that has deviated from historical norms. The ability to move up and release more supply to the market is limited. Some of this is due to investors buying up distress properties.

From Calculated Risk :
http://www.calculatedriskblog.com/2016/10/case-shiller-national-house-price-index.html

home-prices-logan

Adjusting to inflation, prices are not near the housing bubble peak. We adjust to inflation on all other data points but seem to forget to do this for housing prices. Still you can see, even with the adjusted to inflation metrics, we have deviated from historical norm

home-prices-real

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

Housing Starts Up 23.3% Year Over Year

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Today, the US Census Bureau reported their housing start data.   While we cannot expect this rate of growth to continue,  this data for October is the best print of the cycle. Additionally the report shows that the trend of single family growth is still moving in the right direction. As always, be mindful of any new home sales or housing start print that deviates from trend up or down.

Today Census reported their housing start data

Housing starts in October 2016 were 1.323M (SAAR), 25.5 percent (+/- 12.6%)* above September 2016 estimate.

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BUILDING PERMITS Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,229,000. This is 0.3 percent (±2.0%)* above the revised September rate of 1,225,000 and is 4.6 percent (±1.4%) above the October 2015 estimate of 1,175,000. Single-family authorizations in October were at a rate of 762,000; this is 2.7 percent (±1.4%) above the revised September figure of 742,000. Authorizations of units in buildings with five units or more were at a rate of 439,000 in October.

HOUSING STARTS Privately-owned housing starts in October were at a seasonally adjusted annual rate of 1,323,000. This is 25.5 percent (±12.6%) above the revised September estimate of 1,054,000 and is 23.3 percent (±14.4%) above the October 2015 rate of 1,073,000. Single-family housing starts in October were at a rate of 869,000; this is 10.7 percent (±10.2%) above the revised September figure of 785,000. The October rate for units in buildings with five units or more was 445,000.

We saw big rebound in multifamily numbers which was lagging this year in terms of  rate of growth.

Year to date

Single family units: +10.1%
Multi-family units: -1.8%

From Calculated Risk:
http://www.calculatedriskblog.com/2016/11/housing-starts-increased-to-1323.html

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The more important trend  is growth in the single family home sector.  We need to see expansion in the sector over the next eight years in order to really see a full recovery.  I still believe that demographics for housing will get better but not until the  years 2020-2024.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/11/17/new-residential-housing-starts-in-october-surprise-expectations

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For the future, keep and eye out on 4.5% mortgage rates to see if that impacts new home sales in reagard to future housing start activity.

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami