Black September revisited: On planet Earth, 2008 was a credit event, not a housing event

 - by New Deal democrat

In December 2008, I wrote "Black September: Why the economy suddenly went into free fall"  a day-by-day chronology of the events of that month, intending it to be a "first draft of history," and leave a concise record of what happened, and why it happened while it was still fresh in everyone's mind.

Now in 2015, memories have already faded, and there is an internet tussle between Brad DeLong and Dean Baker about whether the Great Recession was primarily a housing event or a credit event. 

In particular, as summarized by Robert Waldmann at Angry Bear, Baker has argued that:

"the decline in construction plus the decline in consumption due to reduced housing wealth explains the decline in aggregate demand (without any need to discuss finance, underwater mortgages, or clogged credit channels...."

Waldmann is inclined to agree with Baker:

"I think his calculations make sense. He gets to his conclusion with simple estimates (no finance included) using data from before the great recession. He has a problem with the timing of the recession which was very mild until Lehman collapsed then very severe. I think he can argue that this was a short run fluctuation with effects which didn’t last ...."

This argument is a variation on the joke about economists that "it works in practice, but will it work in theory?"  Because we have the facts: the anomalous consumer decline between September 1 and October 10, 2008,  during which the shallow recession which had crippled the housing industry and Wall Street, but left Main Street virtually intact, suddenly metastasized into a collapse of the consumer economy that some were beginning to liken to the 1930s, was due to a complete drying up of credit due to a fundamental loss of faith in the financial system.

As I said at the time: 

The decline in housing values did not have a major effect on most American consumers’ behavior. The 30%+ who do not own houses, and the 20%+ who own their houses in full, were completely unaffected. Of the remaining minority, ... although their home equity position may have declined, even now [December 2008] 90% of all homeowners are “above water”, meaning they have positive equity in their houses. 

But the dramatic 45% decline in the stock market from its October 2007 highs is another matter entirely. It [ ] created perhaps the biggest single negative wealth effect ... in all of American financial history....

Below are selections from by "Black September" post.  If you don't want to read the whole edited chronology, skip to September 24 and 30, and you'll get the gist.
=====

[In August 2008,] Despite all of these things, the unfolding events ... [left] Main Street unscathed. For example, Prof. Brad DeLong, who has been an astute observer of the collapse, noted that "The Financial Economy Has Galloping Pneumonia, Influenza, *and* the Grippe, But the Real Economy Just Has a Cold."

.... In short, the August picture of the economy as a whole showed a recession, but so far a shallow one.

[But by] December 3, John Bergstrom of Bergrstrom Automotive, a major auto dealer, appeared on CNBC and said, "on about September 10, we saw our business fall off 30-35%."

A similar sudden decline in consumer spending during September was reported by Shoppertrak:

...While the consumer has remained fairly resilient during this time [2008], two very recent events are dramatically impacting mall visits and consumer confidence.-

Once the financial crisis emerged at the beginning of September, retail traffic declined even further. Between August 31 and September 20, SRTI total U.S. traffic fell an estimated 9.2 percent per day….

- After the failure of Washington Mutual, President Bush’s address to the nation, the presidential debate and the initial rejection of the TARP bailout, traffic fell by an average of 10.5 percent (September 21 – 29).

- The day the TARP bailout package was rejected by congress (September 29) and the NYSE Dow Jones Industrial Average lost 778 points, consumers again responded negatively as shopper traffic fell 12 percent as compared to the same day in 2007

-----

• Sept 7
• Report that treasury is going to do $500Bln bailout/backstop  of Fannie/Freddie in a “conservatorship"
• Sept 8
  • Treasury officially takes control of Fannie/Freddie
  • The late Tanta, in one of her last posts, notes that US Today headline says taxpayers on hook for $5.4 trillion, says that’s what average Americans are reading
• Sept 9 
• Lehman in imminent peril per news – faills from $13 to $9 in one day – put on “credit watch” by S & P
• WaMu “cliff diving” credit outlook cut to “negative”

• Sept 15 
• Lehman fails
• AIG seeks $40 Billion bailout, is downgraded
• Prof. Paul Krugman calls allowing Lehman to fail “financial russian roulette” with entire financial system
• WaMu bonds cut to junk rating

• Sept 16 
• US considering AIG “conservatorship” agrees to inject $85 billion to AIG to avoid collapse. Breadth of AIG failure a complete surprise
• The NYT reports:
• rumor that large money market fund has halted redemptions

• Sept 19 
  • Treasury to insure money market funds possible downgrades of MBIA, Ambac
  • From the NY Times:  Congressional Leaders Stunned by Warnings 
    As the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first. Senator Christopher J. Dodd [said] the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”
• Sept 21
• Paulson announces $700 bln bailout plan

Sept 24 

• From the WSJ:  Bush Addresses Bailout Plan 
  President George W. Bush on Wednesday warned Americans and legislators reluctant to pass a historic financial rescue plan that failing to act fast risks wiping out retirement savings, rising foreclosures, lost jobs, closed business and “a long and painful recession.”
• From the NY Times:  President Issues Warning to Americans 
• From the WaPo: Bush:  ‘Our Entire Economy Is in Danger’ 
  Bush painted a grim picture view of the future if Congress doesn’t act, but he really didn’t address how the plan would work. Bush did comment that the plan was to buy assets “at the current low price”, seemingly contradicting the comments from Bernanke and Paulson earlier today that they would buy at above the current “fire sale” prices.
• Calculated risk observed, "I’m not sure if this speech will motivate people to call their representatives, but it might motivate people that haven’t been paying attention to say: “Wow, this is bad. Let’s make sure our money is safe, and watch our expenditures.” And that could lead to a deeper recession"
• • Sept 29 
    • House of Representatives votes down [bailout] plan
  • Sept 30
    • Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort, says:
      “The money markets have completely broken down, with no trading taking place at all. There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending.

I concluded:

American consumers sustained two massive shocks as a result of Black September. First, their confidence was shattered ... mo[st] importantly by the magnification of those collapses by the public figures (the President, the Treasury Secretary, the Chairman of the Federal Reserve, Senator and Members of Congress) in statements that quite plainly advised Americans that imminent panic over the fate of the entire economy was a proper reaction. And panic American consumers did, as millions of households listened to a President’s speech telling them that the End was Imminent, and then had sober discussions over the kitchen table in which they decided to drastically pull back on discretionary spending, literally overnight.

The bottom line is that, while economic theory may be able to generate equations which can generally shoehorn the huge decline of the Great Recession into a "decline in housing wealth" story, what factually happened was an abrupt and discontinuous decline in consumer spending and business hiring due to a nearly complete loss of faith in the fundamental financial system.

[Note: updated to better reflect chronology]

US Economic and Equity Week in Review

This is over at XE.com

The Niagara Frontier

 - by New Deal democrat

Just got back from the area where I grew up: the Niagara Frontier of NY and Canada. Normally you only hear of this area in winter when someone from the Weather Channel is standing out in a blizzard with a yardstick, but in the summer it is pretty awesome.  Typically the daytime highs from June through August are 70-85 F and lows in the 50s and 60s with lowish humidity.  Perfect vacation weather.

On the Canadian side there is a beautiful small town at the mouth of the river called Niagara On The Lake:

A nice few hours on a rainy afternoon were spent on this veranda sipping red wine:

On the American side there is the similar smaller town of Lewiston, NY.  Drank a toast there too.

And of course there is the falls:

and the gorge:

and the rapids just above the falls:

There is also a huge, ferocious whirlpool downstream where the river narrows to about 200 feet wide and makes a dogleg.

Riding the "Maid of the Mist" boat to the inside of the horseshoe-shaped Canadian Falls is awesome, leaving me and most of the other adults giggling and repeating "Wow!" just like little kids.

Then there's the local food.  Of course, there are chicken wings, reputedly invented at the (still-open) Anchor Bar in Buffalo, but the best are reputedly served at Duff's, and incongruous Mexian adobe style former cocktail lounge located in an affluent suburb.  Here it is as it looked in the 1950's:

I grew up a mile from this place and had never set foot inside until this past week!

Then there's Beef on Weck, a roast beef sandwich on a hard, salty Kimmelweck roll that stands up to au jus sauce and  isn't made anywhere else. And Ted's charcoal grilled hot dogs:

Nathan's, eat your heart out.  Not even close.

Here is a photo taken at the waterfront looking east to the downtown skyline of the much-maligned Buffalo:

And here is the west view from the same location:

Not too shabby, right? On the left side of the photo you can just barely see the NY shoreline stretching southwest.  On the far right is the shoreline of Ontario, Canada, where there are a bunch of nice sandy beaches only about 15 minutes from downtown. Since Lake Erie is shallow, in summer the water warms up to about 70 - 75 F, so it's great for swimming. On a typical summer afternoon there are dozens of sailboats out on the lake.

In wintertime, during those huge snow events, typically everywhere north of that lake shore - which is everywhere north of downtown Buffalo - sees bright sunshine and bright blue skies, while across the entire southern horizon from west to east is the snowstorm.

All in all, a great short summertime vacation.

Weekly Indicators for July 13 - 17 at XE.com

 -by New Deal democrat

My Weekly Indicator post is up at XE.com.  The recent trends all continued this past week.

International Economic Week in Review

This is over at XE.com

It's Another Policy Fail From Ed Morrissey of Hot Air

     In several recent articles, Ed Morrissey of Hot Air has argued against the ACA in quite vociferous terms.  Unfortunately, his articles not only misdiagnose the basic problems that led to passage of the ACA, but offer completely unworkable solutions.

     Let’s begin with his mis-diagnosis, beginning with this:

Before we get to ObamaCare, let’s recall the rationales for government imposing top-down control over one-sixth of the nation’s economy. First, we had to end the issue of the uninsured, which had spiked as a percentage of the population after the Great Recession, mainly from unemployment.

Yes, Ed, it did spike after the recession.  But the rate of uninsured was a 20+ year problem in the making:

During 1968–1980, the percentage of persons under age 65 years who had private coverage remained stable at about 79%, while the number with private coverage increased from 140.5 million to 154.1 million persons (Tables 1 and 2). During 1980–2007, the percentage with private coverage declined steadily, except during 1996–1999. From 1999 to 2007, the percentage of persons under age 65 with any private coverage declined at an average rate of more than 1% per year, to 67% in 2007; the number of persons with private coverage remained at about 174 million during this period. The downward trend in private coverage was driven in large part by a decline in employer-sponsored coverage. In 2007, 62% of persons reported employer-sponsored coverage, down from 71% in 1980.

From The National Health Statistics Reports of July 1, 2009:

Here’s a chart of the data:

In short, Ed, the uninsured was a growing problem for decades.

And the quality of the insurance was decreasing.  Most of the people who previously filed for bankruptcy did due to medical costs, and a majority of those individuals had insurance:

Bankruptcies resulting from unpaid medical bills will affect nearly 2 million people this year—making health care the No. 1 cause of such filings, and outpacing bankruptcies due to credit-card bills or unpaid mortgages, according to new data. And even having health insurance doesn't buffer consumers against financial hardship. 

The findings are from NerdWallet Health, a division of the price-comparison website. It analyzed data from the U.S. Census, Centers for Disease Control, the federal court system and the Commonwealth Fund, a private foundation that promotes access, quality and efficiency in the health-care system.

…..

Even outside of bankruptcy, about 56 million adults—more than 20 percent of the population between the ages of 19 and 64—will still struggle with health-care-related bills this year, according to NerdWallet Health.

And then there’s the fact that insurance companies continued to whittle down the risks they covered, largely by denying coverage to people with pre-existing conditions.  So, the only people that were covered were those who really didn’t need it.

So, to sum up, the health insurance marketplace didn’t cover an increasing number of people for an extended period of time.  Insurers were legally allowed to discriminate against people with pre-existing conditions.  These two factors meant a large number of people didn’t get medical care they needed.  So, when they were finally able to get that care, they had a lot of problems that built-up over a period of time.  This is called pent-up demand, which isexactly how an insurance executive describes the current situation:

By contrast, Marinan R. Williams, chief executive of the Scott & White Health Plan in Texas, which is seeking a 32 percent rate increase, said the requests showed that “there was a real need for the Affordable Care Act.”

“People are getting services they needed for a very long time,” Ms. Williams said. “There was a pent-up demand. Over the next three years, I hope, rates will start to stabilize.”

Now, let’s look at Ed’s proposal for health care:

The only option is to repeal it and introduce market-based reforms that eliminate price-signal opacity, especially in routine care.

I love this option.  For non-emergency care, consumers are going to start calling around to doctors to compare prices.  Really Ed?  Let me use a routine physical as an example.  First of all, what is supposed to happen at a routine physical?  What tests should be done?  What types of analysis should occur?  I honestly don’t know.  And, neither do most people.  This alone gives dishonest doctors and advantage: they can advertise the lowest price, do minimal work, and tell the consumer that, “you don’t need all that other stuff.”  Unless the consumer also happens to be a doctor, he’ll most likely listen to the “learned professional” on this matter, pay little money and receive sub-standard service.  And, what about the idea of having a doctor who actually knows you and your family history?  Doesn’t that provide an asset to the patient that Ed’s system would completely obliterate?  And just how will be learn about prices, Ed?  Wouldn't an exchange (like what we currently have and that was originally proposed by Republicans in response to Hillarycare in the mid-1990s) be the best place to accomplish that?

     And then there’s the huge glaring problem of when most people access medical care: when they need it, and so are therefore at an extreme negotiating disadvantage.  Let’s say you break your arm.  Under Ed’s scenario, this might not be considered a catastrophe, and so would fall out of coverage.  Are you going to call around to every doctor to get a price quote on that?

    Dear Ed: take it from someone who not only knows economics but also designs insurance programs for a living: you don't know what you're talking about.

International Economic Week in Review

This is over at XE.com

It's past the 5th inning for jobs

 - by New Deal democrat

I have a new post up at XE.com.  There are a number of signs that we are after the midpoint in the economic expansion for job growth.

Jazz Shaw of Hot Air: Economic Simpleton

     Over at Hot Air, Jazz Shaw assures us that Germany's demands are only fair, as they are a Greek creditor.  In short, this isn't a coup, but instead parent simply taking control of a situation made worse by an errant child.

     But for an article that deals with a very complex international economic situation, his piece is completely devoid of any data.  So, let's provide some context to point out how completely wrong his analysis is.

     To start, you might want to go to the website tradingeconomics.com, which has a ton of economic information on literally every country in the world.  Let's start by looking at what the Greeks have already done, starting with government spending.  By the way -- I'll use pictures to make it easier.

 

 

Greece has already cut government spending by about 23% since 2009.  That is called austerity, Jazz.  Let's see what kind of effect it has had on the economy, starting with total GDP:

 

 

 

Total GDP at constant prices has decreased about 25%.  That means there has been NO GROWTH.  For the economically challenged, NO GROWTH IS BAD.  Let's look at this from another perspective -- the GDP growth rate:

 

 

 

The Greek economy had three straight years of contraction.  Again -- THIS IS BAD.

 

And, as a result, unemployment is very high:

 

 

Both long-term and standard unemployment metrics are at depression levels.  Again, THIS IS BAD.

And, let's take a look at the debt/GDP ratio:

 

 

The purpose of austerity is to cut spending.  This will make the bond vigilantes happy and also encourage consumer spending, thereby growing the economy, allowing it to increase at rate sufficient to lower the debt/gdp ratio.  There's just one problem: as the chart above shows, it doesn't work as advertised.  Not even close.  In fact -- the EXACT OPPOSITE HAPPENS.

 

     And, ask yourself this question: how many creditors negotiating with a bankrupt debtor don't take some kind of haircut on their loans?  Answer from the real world: quite literally, none.

 

     There is no reason to believe anyone at Hot Air has the background or capabilities to seriously discuss international or domestic economics.  They embarrass themselves on a regular basis with their articles.  But this latest piece is especially bad due to its complete omission of any data.  And that is the real crime here: their readers think they're getting meaningful analysis.  But, instead, they're getting noting of substance. 

 

 

     

International Economic Preview For the Week of July 13-17

This is over at XE.com

Greeks fail to get their pony

 - by New Deal democrat

It appears that Germany and its creditor allies have crushed Greece.  An insightful article in this mornings's Washington Post helps to expalin what Greeks have been thinking:

An overwhelming majority of those who voted no– about 88 percent — believed that, as a result of an OXI vote, negotiations would continue, as you can see below. Only 5 percent believed that a no vote would mean Greece would exit the euro zone. 

By contrast, those who voted yes were much more worried about Grexit. In fact, 61 percent of them believed that would be the most likely outcome of a no vote.

In other words, the 61% of Greeks who voted "no" a week ago thought they were going to get an end to austerity and to keep the Euro too (and a pony!).  So, apparently, did Tsipras. Syriza never had any intention of actually exiting the Euro if they couldn't get an end to austerity.  Since a credible threat, carried through, to leave the Euro was their only leverage, they have been crushed by the creditors.

This entire episode, given Tsipras's apparent cluelessness, has been a failed turning point. Either there will be a move towards fiscal union on Germany's terms, or other southern European protest parties will understand that they must actually be prepared to leave the Euro.

Addendum:  I don't mean to be hard on the Greek people, who have suffered badly and will now suffer even more. But they tried to bluff, when other Europeans could read poll results too, and knew that the Greek people were not in favor or leaving the Euro. So the creditors called Greece's bluff, and Greece folded.

It is easy for Americans to be armchair strategists from 4000 miles away, and think that surely, the Greeks must have a contingency plan for leaving the Euro.  They didn't.

I don't mean to be too hard on the creditor nations either.  It wasn't just the German people who opposed a bailout.  Imagine your cousin Joe, to whom you made a loan last month, comes to you.  He says he can't pay it back, so he asks you for a writedown.  But he also asks for a new loan. How accomodating would you be? Probably, if you considered a new loan at all, you would demand a security - something you could sell if Joe defaults on the new loan too.

But again, the bottom line is, the Greek people had unrealistic expectations.  They have been crushed, and now the creditor nations, like Germany, will use Greece as an example to insist that Europe follow their fiscal terms.

International Economic Week in Review: It's All Greek to Me, Edition

This is over at XE.com

US Equity and Economic Review For the Week of July 6-10: The Fed Speaks, Edition

This is over at XE.com

Weekly Indicators for July 6 - 10 at XE.com

 - by New Deal democrat

My Weekly Indicator piece is up at XE.com.  It used to be that a downturn in commodities was a leading indicator for the US economy.  I suspect that is not their message any more.

International Economic Week in Review; It's All Greek to Me, Edition

This is over at XE.com

Can wage growth save the housing market from the effects of Fed rate hikes?

 - by New Deal democrat

A couple of weeks ago, Prof. Tim Duy of Fed Watch wrote that:

The Fed ... do[es] not want mortgage rates in particular to climb ahead of the economy. The memories of the taper tantrum - and the subsequent stumble in the housing market - still sting. This time around, however, higher rates are being driven not by a shift in the expected Federal Reserve reaction function, but instead by an improved economic outlook. If housing markets can handle the higher rates (note the return of the first-time buyer), and there is reason to believe they will if wage growth continues to accelerate, then the Fed will feel more confident that they are getting across a message consistent with the evolution of activity. And they will thus be more willing to begin the normalization process in 2015 as they currently anticipate.

Is the assertion that the "housing markets can handle the higher [mortgage] rates ... if wage growth continues to accelerate" correct?  

Historically, in terms of the economic cycle, housing is a long leading indicator. Nominal wage growth, at least, is a long lagging indicator (lagging behind even the unemployment rate).  Much as I respect Prof. Duy, the historical record contradicts the assertion that higher wage growth leads to better housing markets. If anything, it is the reverse that is true.

First, let's compare housing permits YoY (red) vs.YoY nominal wage growth (blue).  Here's 1965 through 1985:

and here is 1985 to the present.

Note that, if anything, and increase in nominal wage growth typically has coincided with a *decline* in housing permits!

But what about real, inflation-adjusted wage growth?  The record is more mixed:

While there is a superficial coincident relationship, a closer examination reveals that real wages rose all through the late 1960s into the early 1970s, despite several downturns in housing permits. The reverse - declining real wages with several housing booms - is true from 1974 into the mid 1990s. Finally, from 1998 to the present, permits and real wages have generally moved inversely!

While unfortunately there is no good way to compare real household income (which is only measured once every 3 years, officially) with permits, we can measure real aggregate wage growth (which I think is the best measure of an employment recovery).  Here are permits (red) with real aggregate wages from 1965-85:

and here is 1986 to the present:

With the exception of the housing boom and bubble period of 1995-2005, where the data is more noisy, i.e., 1965-94 and 2006-present, where the data is noisy, the leading relationship of housing to real aggregate wages is clear.

So, with all respect to Prof. Duy, and to whomever may have similar opinions at the Fed, the record does not appear to support the notion that wage growth will maintain growth in housing even if the Fed is raising interest rates.

Midyear 2015 update: corporate profits as a leading indicator for stocks

 - by New Deal democrat

Here's a graph of the YoY% change in the S&P 500:

Needless to say, it has decelerated markedly.

Corporate profits, a long leading indicator, tend to turn before stock prices, a short leading indicator.  Which means that corporate profits should lead stock prices.  My midyear 2015 update of that relatioinship is up at XE.com.

A midyear update on the long leading indicators

 - by New Deal democrat

I have a new post up at XE.com.  The long leading indicators look 12 or months more ahead.  We can now make a good forecast forward to Q2 of next year.

Forecasting the 2016 election economy: is it the economy, stupid?

 - by New Deal democrat

Is it "the economy, stupid?" Or is the economy just one contributing factor to presidential election results? Either way, what economic metrics best correlate with the election outcome?  Can we forecast those metrics reliabily enough to usefully forecast the election result itself even a year in advance?

With the advent of poll aggregators such as Nate Silver and Prof. Sam Wang of the Princeton Election Consortium, forecasts of election results have improved markedly, especially as we get down to the wire.

But can we usefully predict where those poll results might be?  Well, that's an experiment I am going to undertake over the next year.

There are two components to this undertaking.  The first is to identify those economic metrics which most correlate with election results.  The second is to identify useful leading indicators for those metrics.

Fortunately, political scientists and statisticians have pored over economic data and proposed a number of metrics -- for example, real GDP or real income -- that they believe have had predictive value for election results.  Typically these focus on the 2nd and/or 3rd quarter of the election year.

So my first goal is to examine those metrics, and select from among them perhaps three or four that appear to most closely match the outcome of the election.

Once I have identified those metrics, then I will try to forecast them, generally by variations on existing long and short leading indicators for the economy.

In the best case scenario, hopefully by the end of this year I will be able to forecast with confidence the likely value, or range of values, of several critical economic variables, which in turn will shape the results of the 2016 elections.  Even if the exercize doesn't pan out, it should be useful and hopefully fun (in the nerdy sense).

In 2011, Nate Silver listed over 20 economic variables which best correlated with election results.  In my next post, I will examine the most accurate of those variables in order to select a few to be tracked most closely.

Five graphs for 2015: mid-year update

 - by New Deal democrat

At the end of last year, I highlighted 5 graphs to watch in 2015.  Now that we have all of the reports through midyear, let's take another look.

#5.  Mortgage refinancing

After a mini-surge at the end of January (light brown in the graph below), refinancing applications fell back to their post-recession lows due to a rise in mortgage rates.  Mortgage News Daily has the graph:

Over the last 35 years, refinancing debt at lower rates has been an important middle/working class strategy.  There is little room left for that strategy.  As shown in the below graph I first published over 3 years ago, if mortgage refinancing stays turned off too long, and wages don't grow in real terms, then consumer spending falters and so does the economy:

 

That three year anniversary is now 5 months away.  

#4 Gas prices

Here is a graph of average hourly wages divided by gas prices (blue) since the bottom in gas prices in  1999: 

How long must a worker labor in order to buy a gallon of gas?  After skyrocketing in the lead-up to the Great Recession, gas prices collapsed, helping the consumer start to spend again on other things at the bottom of that recession.  The steep drop in gas prices late last year took us almost all the way back to that bottom.  Just as in 1986 and 2006, at first consumers saved the money, but once they loosen their pursestrings - which looks like it happened in May - this will be a strong tailwind to the economy.

#3 Part time employment for economic reasons

 Next is a graph of part time workers for economic reasons expressed as a percentage of the labor force.  In the first half, this continued to improve:

In the longer view, however, this is still 2% (about 3 million) above the boom level of 1999 and about 1.5% (2.25 million) above the level of 2007:

The definition of this measure changed in 1994, so the prior data is not directly comparable, but since the 1994 change subtracted about 1% from the measure, by adding 1% back in, we can get a good feel for how we compare with the recovery from the deep 1981-82 recession:

We are still at a level not seen since the mid-1980s.

#2 Not in Labor force but want a job now:

This moved generally sideways during the first quarter, but improved nicely in the last two months:

It is now only 300,000 above its post-recession low of November 2013 (just prior to Congress's cutoff of extended unemployment benefits) and about 1.6 million above its 1999 and 2007 lows.

#1 Nominal wage growth

After 3 poor readings last August, December, and February, YoY growth in nominal wages fell back close to their post-recession lows before rebounding this spring.  Even so, YoY growth is still under 2%:

Compare our present expansion with the previous two.  In the 1990s and 2000s, nominal wage growth was started to accelerate, and was approaching 3% YoY at roughly the same time as the broad U6 unemployment rate fell to the 9.5%-10% range.  Currently U6 unemployment is 10.5%.

There have been a few interesting notes about the lack of wage growth.  The staff of the Federal Reserve has done a study indicating that the number of long-term unemployed plays an important role (since presumably these people are more desperate).  In a similar vein, the Atlanta Fed has reported that the relatively high number of underemployed, and in particular employees who work part time for economic reasons, and also the high number of those out of the labor force, but who would return to work if conditions were better (see items number 2 and 3 above), are an important factor in holding down wage growth.  It has also been suggested that the disproportionate (compared to normal times) percentage of relatively highly paid employees (Boomers) retiring from the labor force, and being replaced by younger workers, is holding down wages.  

In summary, six months into the year there has been no real improvement in either refinancing or wages. Should wage growth not improve, and mortgage refinancing remain dormant, we are likely to run into trouble - at least deceleratiing growth - probably by early next year.

On the other hand, involuntary part time employment has improved by about 300,000, and discouraged workers who have completely stopped looking have decreased by about 400,000. Shoould those trends continue, I expect wage growth to start to accelerate in about 4 to 8 months.  Still,  if current trends continue, we won't achieve real, full employment like 1999 or even  2007 for another 1.5 to 3 years! 

Finally, seasonally low gas prices continue to be a boon to consumers. 

International Economic Preview For the Week of July 6-10; Greece and China Causing Concern, Edition

This is over at XE.Com

US Equity and Economic Review For the Week of June 29-July3; Some Weakness Technical Emerging, Edition

This is over at XE.com