Morning Report: Average wages growing faster than median wages 7/18/18

Vital Statistics:

Last Change
S&P futures 2808 -2.5
Eurostoxx index 386.74 1.76
Oil (WTI) 67.62 -0.46
10 Year Government Bond Yield 2.85%
30 Year fixed rate mortgage 4.51%

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

Mortgage Applications fell 2.5% last week as purchases fell 5% and refis rose 2%. The refi share rose to 36.5%.

Housing starts hit their lowest level since September last year, falling to 1.17 million annualized. This is a huge drop from the strong May print of 1.33 million. The Midwest and the South explain the declines, which was both in single family and multi. June weather was generally good, so that isn’t the explanation. Building Permits fell as well, although not as dramatically. They came in at 1.27 million. The Midwest accounted for most of the decline in permits. Housing starts tend to be volatile, but the moving average is turning down, which is worrisome.

Despite the drop in starts, builder confidence remains strong, at least according to the NAHB. The index was flat at 68, which is an elevated number. Pricing remains strong, but the supply is not there. Rising material costs are becoming an issue as lumber tariffs raise costs. So far builders are able to pass these costs on, but there is a limit, especially if wage inflation remains below house price inflation. The median house price to median income ratio is getting back to extreme levels, and interest rates are not going to come to the rescue this time around.

Jerome Powell begins his second day of testimony on Capitol Hill. There was nothing market-moving yesterday, so expect more of the same. Yesterday, his message was that the US economy has clear sailing ahead with strong growth and moderate inflation. With regard to the potential trade war, Powell downplayed the risks to the economy and said there will be a benefit if it turns out that Trump’s actions lower tariffs overall in the global economy. The US generally has much lower tariffs than its trading partners, and Trump has already made the offer to eliminate all US tariffs if our trading partners eliminate theirs. Separately, Powell said that it would ultimately be better for the US if the GSEs were off the government balance sheet. That is pretty much a universal opinion in DC these days, as the US taxpayer bears the credit risk of the majority of the mortgage market.

Median weekly earnings have not kept pace with the CPI lately, which means workers are losing ground, at least according to the latest survey out of the BLS. It shows that the median weekly wage rose 2% in the second quarter versus an increase in the CPI of 2.7%. Interestingly, the average hourly earnings increase during Q2 was 2.64% in April, 2.74% in May and 2.74% in June. It seems strange that the difference between average wage inflation and median wage inflation would be so stark, which would imply that wages are mainly rising at the high end, not the lower end. Note the other BLS measure of wage inflation, the employment cost index, shows comp growth of 2.9%, which takes into account benefits. For the most part, average hourly earnings have been rising faster than the core PCE index:


New York, Connecticut, New Jersey, and Maryland sued the government yesterday over the state and local tax deduction cap. The lawsuit if probably more for show than anything and doesn’t seem to have much chance of success. Some of the states are looking at workarounds, allowing people to “donate” to charitable funds which go to funding state and local services. Charitable deductions are still deductible. At the end of the day, the biggest issue to states like NY and NJ are the property taxes. NY and NJ have some of the highest property taxes in the country, where people routinely pay $20 – $30k or more. That explains at least partially why you can’t find buyers for luxury properties in the Northeast.

The ECB concludes that QE may have helped the rich, but it helped the poor more. While QE did boost asset prices (housing, bonds, stocks etc) it also boosted growth, which more than offset the increase in asset prices.  “Low short rates do hurt savers via a direct effect, that is a reduction in income on their assets . . . however [low rates] also benefit savers, like all other households, via an indirect effect — that is, the reduction in their unemployment rate and the increase in the labour income,” the paper, called “Monetary policy and household inequality”, said. “The indirect effect dominates . . . The paper also finds that [QE] reduced inequality, mainly through a reduction of the unemployment rate of poorer households.”

Note that this contradicts the observation between median and average earnings. If QE was actually decreasing inequality, you should see median earnings growth close to average earning growth or even slightly higher. Not way below.

19 Responses

  1. Peak 2018. The video is priceless


    • I spent my whole life trying not to be careless. Women and children can afford to be careless, but not men.


      • What both men and women consider masculine has evolved through millennia of natural selection. It would take generations upon generations to change our gut feelings and natural impulses.

        Love how the left thinks they can just wave a magic wand, force Webster’s to change the definition, and magically betas will become alpha.

        Liked by 1 person

    • The new definition of masculine is “do anything a woman or really transwoman or gay person tells you, or shut up and die, you cisnormative monster”.


    • Peak 2018. The video is priceless

      It’s a classic. Their critique (like most critiques of masculinity) intentionally conflates man-boy syndrome, or immature or near-infant masculinity, with mature masculinity, which is a different thing.

      Biff from Back to the Future is a great example of man-boy “masculinity”, or Emelio Estevez from Breakfast Club. John Wayne, now . . . there ya go. That’s “mature masculinity”.

      That being said, I’d bet money that every person in this video was drawn from a large urban population where being contrary is a way of standing out, of getting attention (of being included in a viral video, for example), where the human drive to seek attention and social status gets guys to dress fabulously and advertise their uniqueness, while conforming to a rigid, but narrow and exclusive social norm.


      • I really think the “fashion industry” has always been dominated by males who wanted women to look like boys. Does this make me a bigot?


        • Well, runway fashion has been dominated by artists making art, not clothes real people would want to wear, for a long, long time.

          Everybody in that video has multiple affectation of dress and appearance. None of them look like the kind of person who gets up in the morning, throws on jeans and a t-shirt, and gets busy working a 9-to-5.

          Which is fine, but again it gets to the just being contrary and affecting superior intellect in their deconstruction of word-definitions in the same way they advertise their superiority to others (oops, their individuality) by dress and grooming and jewelry.

          The definition of “masculinity” isn’t limiting any more than the definition of “banana” is limiting.

          “I feel like being a banana is so much more than being a yellow fruit. I think it could also involve being a green, salty, fibrous vegetable. Or perhaps a television. Or maybe a gravitational wave. I don’t understand why we have to limit ourselves to one, constraining definition of ‘banana’.”


  2. How anyone could consider this a partisan witch hunt anymore is simply beyond me


    • The argument is he needs the D’s to win the House to shut down the investigation of FISA abuses.

      Liked by 1 person

    • Your sarcasm is noted, sir.

      I don’t think this is a witch hunt nor do I think it is partisan. This was the same James Comey who revealed everything about his HRC investigation during the campaign and nothing of the FBI’s Russia investigation and its implication of some folks in the DJT campaign.


      I think when Congress whimpered softly and gave up the commerce power it failed us and that unless the free trade Rs, many of whom I have donated to in the past, regain their perspective timely, voting D for Congress makes sense to me. However, the caveat there is finding free trade Ds, of course. A distinction I might make that many would overlook, I suspect.


      • I think it’s tough to argue that the tweet is not partisan. Because it seems transparently partisan to me. Why not “vote 3rd party”? Or “vote for anybody but the current Republican incumbents”?

        I think any argument that goes “you must vote for Party X for the good the country”, left or right or something else, is inherently partisan.

        Partisan. The Russian stuff as it surfaces in the larger culture and on the news is a partisan issue as well, although in a way where I think it’s entirely credible to suggest people are just participating in a kind of mass delusion that something interesting, important, or unique has happened. While I have no doubt somebody somewhere in the Russian government signed off on the purchase of $100k worth of Facebook ads trashing HRC (something that is often left out now is how much the ads were anti-Hillary rather than pro-Trump, but I digress) that it represents in and of itself an existential threat to our democracy is deluded. Or even merits the amount of money being spent investigating it.

        The “hacking” of the DNC is the equivalent of the robbery of a bank without a security guard that leaves the door to the vault open and doesn’t want to pay for a security system. That is, the story should be how incredible insecure the DNC was and how they either lacked any kind of security policy, or Podesta was in flagrant violation of it. I don’t know that China is buying facebook ads (wouldn’t surprise me) but certainly they are hacking us more aggressively than Russia. But that doesn’t fit into the Trump collusion narrative so it’s not news. Although you could get a more affirmative sign off on that from our intelligence agencies if you wanted to.

        This feels very much to me like the Birthers and the Truthers with the slight advantage of having their ideological hysteria hew a little closer to the facts, with a smidgen more credibility.

        That being said, I don’t fault Mueller. I’d be busy job justifying and trying to come up with something if I were in his position, too.


  3. Broke: Russians influencing votes
    Woke: Russians voting

    Liked by 1 person

  4. Impossible to argue.


  5. Liked by 1 person

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