Morning Report: Why aren’t we seeing wage growth? 5/22/17

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S&P Futures 2382.3 0.8
Eurostoxx Index 391.4 -0.1
Oil (WTI) 51.0 0.6
US dollar index 88.6 -0.1
10 Year Govt Bond Yield 2.25%
Current Coupon Fannie Mae TBA 103.27
Current Coupon Ginnie Mae TBA 104.21
30 Year Fixed Rate Mortgage 3.94

Stocks are flat this morning on no real news. Bonds and MBS are down small.

Economic activity picked up in April, according to the Chicago Fed National Activity Index. It rose to .49 (better than expectations) and the 3 month moving average rose to .23. Production and employment led the rise, while personal consumption and housing were negative.

We have some Fed-speak at 10:00 EST today along with a bunch after the close. The biggest events this week should be the FOMC minutes on Wednesday and the second revision to Q1 GDP on Friday. We will also get a lot of housing data this week.

One of the biggest issues for the Fed is wage inflation (or the lack thereof). The last time unemployment was this low, we were experiencing 4% wage growth. Why aren’t we now? Here are a few explanations. They revolve around a few different theories. The first is that there has been a structural change in labor economics, and that the tradeoff between unemployment and inflation is over due to globalization, lack of union representation, etc. The second explanation is that wage negotiation dynamics have been colored by the economy since 2008: employers are training people internally instead of hiring outside at a higher price, employees don’t feel comfortable asking for more, productivity is lousy, and the huge reservoir of the long-term unemployed means the market is not as tight as it may appear. The final one is a measurement problem: that the BLS numbers aren’t accurately reflecting the reality of the marketplace. Take construction: Builders constantly complain that they can’t find skilled labor, that they are offering signing bonuses, etc yet when you look at the actual BLS numbers, construction wages are only growing 2.1%. We are seeing in the mortgage business with ops folks as well. So maybe we are starting to see pockets of wage growth, however it isn’t showing up quite yet in the rest of the economy or the numbers.

The drop in construction spending hasn’t only been in housing – it has also been in schools. State and local governments are spending about 1/3 less on school construction than they did before the crisis, yet enrollment is up 4%. This is just another problem for the first time homebuyer – finding affordable homes with good schools.

NAR is predicting 5.6 million home sales in 2017, up 200k from last year, and new home sales of 620k, up from 560k last year. GDP will grow at 2.2% and inflation will remain tame. Sales would be higher if there was more inventory, and the group hopes that regulatory changes, especially with Dodd-Frank will ease up credit for smaller banks, who fund local homebuilders.

Now that the REO-to-rental trade is largely played out, Wall Street is now building houses for rentals. Some are planned communities, where renters get the benefit of living in a single family detached homes, plus they get some of the advantages of apartment living, with gyms and common spaces. They also don’t have to deal with maintenance.  Interestingly, many people intend to rent for only a short time period, but end up staying. For one landlord, 1/3 of the tenants have been on month-to-month arrangements for 7 years. The REITs behind this trade also get discounts from builders, lower maintenance costs, and about a 5% – 8% pickup in rental income for a new house.

19 Responses

  1. Heh. First.


  2. Scott Adams is funny:

    “The other big reason for eliminating press briefings is the uniqueness of President Trump. No surrogate can speak for our current president and expect to stay consistent and accurate. The president’s persuasion system involves a lot of flexibility with the facts, as well as moving people’s attention and energy where he needs it. Realistically, no surrogate can hope to match what President Trump does, or even to stay consistent with it. And as long as the president is willing to do lots of on-camera interviews, the press should get plenty of easy-to-mine news right from the source. No press briefing needed.”


  3. This is pretty good:

    “The power of an image
    By Chris Ladd
    May 22, 2017”

    Liked by 1 person

    • Every identity group eventually must fracture into increasing narrow bands of “good person” identity, to the eventual point where everybody who is not 99% like you in every way is an outsider and an Other (whom is constantly victimizing you with their continued existence).


  4. Guess if you damage the political prospects of democrats, you get the character assassination from the MSM, even if you are a high schooler…

    Gotta love the left…

    Liked by 1 person

    • First, I can’t imagine a teenage girl caught in a sexting scandal might lie. Perish the thought!

      She could have lied back and forth, it doesn’t change the fact that Weiner is a huge—I mean, like leviathan—skeeve and mega-creep. Nothing is going to change that.

      I think it’s entirely possible that she lied, but if she had been lying similarly about some mega-creep Republican, you wouldn’t see this sort of coverage on the accuser in The Hill in a million years.


  5. Like

    • regardless of immigration status. those number are way off. anyone with a serious disease would flock to CA and demand care. what’s the price of a open heart surgery — bus fare from anytown USA to LA


      • Tennessee had this exact problem with TennCare. People from Kentucky, Arkansas, Mississippi and other nearby states were showing up to get free healthcare (doing whatever to prove their poverty). Some just directly finding some way to take residence, others taking up “residence” with relatives or friends for the purposes of accessing healthcare. Healthcare spending rapidly grew to be the largest budget item on the state budget. Although when agitating for a state income tax, Don Sundquist (some 18 years ago, now, jeez time flies) only cited police and education as a rationale for instituting a state income tax . . . he lost that battle).


      • If you’re Arizona and you have an illegal needing a transplant, sending them to CA on a private jet would still be cheaper.

        Liked by 1 person

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