Monday, April 30, 2012

Today's links

1--Where The Productivity Went, Paul Krugman, NY Times
Excerpt: (See chart) Larry Mishel has a systematic breakdown of the reasons for worker income stagnation since 1973. He starts with the familiar divergence: productivity up 80 percent, the compensation (including benefits) of the median worker up only 11 percent. Where did the productivity go?

The answer is, it’s two-thirds the inequality, stupid. One third of the difference is due to a technical issue involving price indexes. The rest, however, reflects a shift of income from labor to capital and, within that, a shift of labor income to the top and away from the middle.

What this says is that widening inequality makes a huge difference. Income stagnation does not reflect overall economic stagnation; the incomes of typical workers would be 30 or 40 percent higher than they are if inequality hadn’t soared.

2--The wedges between productivity and median compensation growth, EPI

Excerpt: Income inequality has grown over the last 30 years or more driven by three dynamics: rising inequality of labor income (wages and compensation), rising inequality of capital income, and an increasing share of income going to capital income rather than labor income. As a consequence, examining market-based incomes one finds that “the top 1 percent of households have secured a very large share of all of the gains in income—59.9 percent of the gains from 1979–2007, while the top 0.1 percent seized an even more disproportionate share: 36 percent. In comparison, only 8.6 percent of income gains have gone to the bottom 90 percent” (Mishel and Bivens 2011)....

Productivity in the economy grew by 80.4 percent between 1973 and 2011 but the growth of real hourly compensation of the median worker grew by far less, just 10.7 percent, and nearly all of that growth occurred in a short window in the late 1990s. The pattern was very different from 1948 to 1973, when the hourly compensation of a typical worker grew in tandem with productivity. Reestablishing the link between productivity and pay of the typical worker is an essential component of any effort to provide shared prosperity and, in fact, may be necessary for obtaining robust growth without relying on asset bubbles and increased household debt. It is hard to see how reestablishing a link between productivity and pay can occur without restoring decent and improved labor standards, restoring the minimum wage to a level corresponding to half the average wage (as it was in the late 1960s), and making real the ability of workers to obtain and practice collective bargaining.

3--Breaking Down First Quarter 2012 GDP Numbers, credit writedowns

Excerpt: In their "advanced" estimate of the first quarter 2012 GDP, the Bureau of Economic Analysis (BEA) found that the annualized rate of U.S. domestic economic growth was 2.20%, down more than three-quarters of a percent from the fourth quarter of 2011. The vast bulk of the downturn was in commercial activities, with both fixed investments and inventories lowering the headline number substantially. Consumer spending on both goods and services improved slightly, and the ongoing contraction in governmental spending moderated somewhat. The BEA’s bottom-line "real final sales" improved about a half-percent to an annualized growth rate of 1.61% — hardly robust and certainly not the kind of numbers we would expect to see nearly three years into a recovery....

As lackluster as it may be, the headline number of 2.20% is still likely overstating the health of the economy:

– The "deflater" used in constructing the reported growth rate (reflecting annualized inflation of 1.54%) will seem patently absurd to anyone who lived in the real world during the first quarter of 2012, especially if they bought gasoline or groceries. Using the CPI-U as a deflater makes the headline growth almost completely vanish.

– Even the BEA’s optimistic "deflaters" couldn’t keep the per capita disposable income from shrinking during the quarter.

– Governments continued to shrink their spending, and they sucked -0.60% from the headline number. That trend is unlikely to reverse anytime soon.

– "Real final sales" and factory production continued to be supported by inventory building — which is unsustainable and must ultimately reverse (even if the cost of carrying the inventories has been kept artificially low by the Fed).

Our bottom line for the economy has always been the health of households. This report shows per capita disposable income is shrinking and that any improvements in consumer spending are likely unsustainable. We suspect that the softening seen in this report the harbinger of a collapsing "recovery" that will continue to unfold during 2012.

4--The housing crash continues, Dr Housing Bubble

Excerpt: US home prices have once again made a post-bubble low in spite of all the artificial intervention and massive bailouts to financial institutions. The bottom line unfortunately is that US household incomes have been strained for well over a decade. You can slice it up by nominal or inflation adjusted data but household incomes have been moving in a negative direction during the 00s and continuing into this decade. Keep in mind there is a massive pipeline of problems still in the housing market with over 5.5 million mortgage holders in some stage of foreclosure or simply not paying on their mortgage. This is more than a housing crisis but a crisis of quality job growth. At the core, that is truly the problem. There are markets in the US that are still correcting severely even after record breaking declines from their peaks reached in 2006 or 2007. Some of these markets are approaching two lost decades which seems stunning but again, this reflects weaker household balance sheets....

Lenders have a front row seat to what is going on and essentially what they are saying with a swarm of short sales is they believe home prices in the intern will be going down. Why else would you want to exit at this moment if you believed home prices would be soaring shortly? Bank balance sheets are still inflated with poor performing properties and what the Case-Shiller report shows is there is likely to be little support for higher prices anytime soon....

The crashing markets of Atlanta and Las Vegas simply show that economic growth is not able to support current home prices even in cheap metros. The lower prices in Chicago, Los Angeles, and San Francisco reflect the correction in the mid-tier markets. What impact will 5.5 million distressed and foreclosed properties have on the market going forward? So far, it has been to push prices lower which isn’t a surprise.

5--Prescription for a Depression, NPR

Excerpt: "It would be nice if we had a political system in which important figures from both parties understood textbook macroeconomics, because that's all we're talking about here," he says. "The odd thing is I'm not a radical. I'm actually calling for believing your Econ 101 textbooks and acting on what they say."

Mustering the political will to extract the U.S. from its worst economic downturn since the Great Depression won't be easy. But, Krugman says, "that's not a reason to stop trying to get the truth out there."....

On austerity at the state and local levels
"Particularly since the stimulus such as it was has expired, what we've actually had is a lot of fiscal austerity. If you include the state and local governments — which you should — then what we've actually had is a record-breaking decline in government payrolls, a really major drag from governments cutting back rather than expanding. So, people have said about the 1930s that Keynesian policies didn't really work because they weren't really tried, and that applies with extra force to this depression."

6--Spain's Credit Crunch, Euro Group Considers Direct Aid for Banks, Der Speigel

Excerpt: The banking crisis in Spain has countries across Europe in a deep state of worry. A German newspaper is now reporting that the European Central Bank and a number of euro-zone countries would like to change the euro bailout fund in order to permit it to lend money directly to financial institutions in the throes of the crisis. Germany, however, is strictly opposed to the idea. ...

Euro-zone member states are apparently concerned that recent efforts by the European Central Bank to flood banks with cheap credit were insufficient to stave off the crisis. In two steps, the ECB recently issued cheap longterm loans to European banks with a total value of €1 trillion. But this aid is only slowly reaching businesses. That's why leaders are now considering providing the ESM with similar bank lending capabilities, according to the Süddeutsche.

The effort, assuming it materializes, is likely to provoke a heated debate within the European Union. Over the weekend, German Finance Minister Wolfgang Schäuble, of Chancellor Angela Merkel's conservative Christian Democratic Union party, expressed his vehement opposition to allowing the ESM to provide direct loans to banks. The governments of the Netherlands, Austria and Finland also oppose plans to provide ESM aid directly to banks.

Under the current rules for the euro bailout program, only euro-zone member states can request money from the backstop fund. Countries can then in turn lend that money to banks, but the governments are also required to adhere to strict austerity and reform measures as part of the deal. These stipulations were an important precondition for getting Germany to agree to the EU bailout fund in the first place. If ESM were permitted to lend directly to banks, it would effectively nullify those provisions.

7--Banks Are Manipulating Inventory, Abigail Field, Firedog Lake

Excerpt:   Given the grim reality of too many houses at crazy high prices, how come we’re seeing a spate of good housing news stories? Well, those stories reported supply had shrunk so much, prices were rising. One of the most comprehensive was by Nick Tiramos for the Wall Street Journal, detailing that shrunken inventory was leading to some bidding wars in several markets. Local pieces, this Arizona Republic story, continued the theme. Both articles noted that the bidding wars didn’t mean prices had recovered much compared to the bubble years. Nonetheless, if the decreased inventory is for real, the optimism’s justified, right?
Too bad the inventory decrease seems artificial, the result of bank manipulation. Take Phoenix: RealtyTrac identifies 6,611 “bank-owned” properties there. An Arizona realty website lists only 275 for sale. Similarly, Yahoo real estate claims there’s over 8,000 foreclosure properties in Phoenix, but lists less than 4,000 homes of any type. lists a bit over 4,000, plus 312 foreclosures and shortsales. So are the foreclosures in Phoenix on the order of 300 or 6,600? Makes a wee bit of difference when the non-”distressed” market is about 4,000, don’t you think?

(To Tiramos’s credit, his piece acknowledges the good news may not last because of the bank owned backlog; the more cheerleading articles don’t.)

Phoenix isn’t the only place where banks are holding properties off the market. In Portland, Oregon, banks aren’t selling 80% of the homes they own, The Oregonian reports. All the bank owned inventory statewide represents more than a year and half’s supply of houses all by itself, according to a RealtyTrac executive quoted in the piece. If the housing inventory is that distorted in Oregon, what’s it like in the hardest hit states?

By holding off inventory, the banks provide temporary support to prices, but for how long? The inventory will make its way to market–there’s just too many houses held in reserve for the banks to manage and maintain the properties in a market-price optimizing way. Moreover, this artificial control of inventory means foreclosures do not help a market to bottom; foreclosing cannot “clear” the market


No comments:

Post a Comment