Sunday, March 24, 2019

Wisconsin manufacturing jobs keep falling behind. Why do they still need their tax cut, again?

Among many areas of concern is the economy these days was evidence of softening in the job market. While I noted that the meager growth of 20,000 jobs in February may simply be due to brutal weather and a balancing out of an allegedly strong January 2019, that really hasn't been the case closer to home.

Wisconsin’s job situation was already weak in 2018, with growth revised down to less than 1% for the year. And to start 2019, things deterioriated further, based on this week’s state jobs report.

Wisconsin jobs report
All jobs
Feb 2019 -3,400
Jan 2019 (revised) -800

Private sector jobs
Feb 2019 -300
Jan 2019 +100

Feb 2019 -900
Jan 2019 -1,100

Those losses in manufacturing are on top of a downward revision of 14,000 manufacturing jobs that we found out about earlier this month. Which means we’ve added all of 3,100 manufacturing jobs in the last 12 months, and averaged less than 2,000 a year since the end of 2014.

Yet WisGOPs are running around claiming the massive tax cut to manufacturers that’s been in effect for manufacturers in that time is necessary and a “job-creator”? Give me a break. This analysis and chart from UW-Madison's Menzie Chinn shows the before-and-after in manufacturing job growth since the $225 million-a-year Walker/WisGOP tax cut for manufacturers has been in place.

In fact, it shows that 2018 was a year manufacturing-heavy Wisconsin actually fell behind the US rate of job growth. We just weren't told of that until after the November election, when totals were benchmarked to the "gold standard" Quarterly Census of Employment and Wages (QCEW). And the declines reported in January and February should make you wonder if the change in administrations in Madison is causing a more honest accounting of manufacturing jobs in the state (or at least it should).

So no matter what BS Noah Williams and the Koched-up hacks in WisGOP World are making up and trying to sell you, it's pretty evident that there has been no correlation between the major tax cut to manufacturers and job creation in Wisconsin. In fact, I'd likely be more accurate if I claimed it's causing a negative effect due to the encouragement of more profit-hoarding by CEOs.

And now if this week's interest rate revision is as indicative as it’s been over the last 40 years, it means that an official recession will start by this time next year. So I certainly don't see where it helps to be giving preferential treatment to a group of businesses that haven't done anything to hold up their end of the bargain. Especially if available resources for schools and road repairs drop due to the lack of activity, there's no way those oligarchs should be allowed to continue their free ride.

The economic outlook is back! And tells a tale of Wisconsin's subpar record

Among many improvements with the start of the Evers Administration was one that came out on Friday- the return of The Wisconsin Economic Outlook from the Department of Revenue! As the state continued to fall farther behind during the Age of Fitzwalkerstan, the Walker Administration stopped distributing this quarterly report 4 years ago. But now that Evers is in office, this analysis has returned.

In addition to a look ahead at what it thinks Wisconsin's economy will look like for the next two years, the DOR's Economic Outlook also looks at the state's recent economic history. And it's not so good.
Wisconsin personal income grew  3.6% in 2017, just above the 3.5%  growth in the Great Lakes region and below the 4.4% growth nationwide.  Wisconsin personal income should post growth of 3.8% in 2018 and 3.9% in 2019,  compared to 4.5% growth  nationwide in both years.     

Wisconsin employment grew at  slightly less than half the pace of  the U.S. in the last two years. Wisconsin added just 21,500 jobs  in 2017 and 23,000 in 2018, after  adding an average of 33,700 jobs  per year between 2011 and 2016.  Wisconsin employment posted  year‐over‐year growth of 0.7% in  2017 and 0.8% in 2018, compared  to growth of 1.6% nationwide.   The forecast calls for similar  growth in 2019 and 2020, while  U.S. employment growth slows to  1.4% in 2019 and 1.0% in 2020. 

On the positive side, the DOR report indicates that Wisconsin's unemployment rate will continue to be around 1% below the US rate, as it has been for most of the last 10 years. But the trend of lower wage growth is also expected to continue (and yes, I find this to be an oddity).
Wisconsin wages and salaries  grew 3.4% in 2017 in Wisconsin  and 4.6% nationwide.  Wisconsin's  forecast calls for total wage  growth of 3.9% in 2018 and 3.6%  in 2019, compared to 4.7% and  4.6% nationwide.  The share of  wages and salaries relative to total  personal income stands at around  50% in 2017 and shows a  continuing declining trend since its  peak at 63% in the '60s. 
Despite those lagging numbers, the DOR's Economic Outlook says that the state's revenue picture is in line with expectations, with 4 months left in the 2019 Fiscal Year.

Lastly, the Economic Outlook also notes that Wisconsin has fallen behind the country on it's growth in economic output, and that situation isn't expected to change much either.
State Gross Domestic Product  (GDP) shows Wisconsin real GDP  growth of 1.2% and 1.8% in 2016  and 2017, respectively, compared  to 1.6% and 2.2% nationwide.  As seen at the national level, the tax  cut and fiscal stimulus passed in  2017 will boost 2018 growth to  2.4% in Wisconsin and 2.9% in the  U.S.  The forecast expects  Wisconsin real GDP to grow 2.0%  in 2019 and then decelerate to  1.5% in 2020 and 1.1% in 2021, as  the federal stimulus fades out. 
Given that we reached an interest rate inversion on Friday, which has reliably called every recession in the last 40 years, I'd say those GDP predictions may be a bit, ahem, aggressive.

But it's nice to see honest analysis return to state government, instead of campaign propaganda at taxpayer expense, and bad news being hidden. Let's hope it's yet another sign that Wisconsin is taking steps back toward the decent, open governance that we deserve.

Saturday, March 23, 2019

Two big words from yesterday- not "March Madness", but "RATE INVERSION"

Earlier this week, the Federal Reserve was sending signals that the US economy was slowing down quickly from the sugar high of the GOP Tax Scam in 2018, and I noted that we were nearing a situation that has predicted every US recession in the last 40 years.

Well, that situation arrived on Friday, and was accompanied by a 460 point drop in the DOW.
A closely watched section of the Treasury yield curve on Friday turned negative for the first time since the crisis more than a decade ago, underscoring concern about a possible economic slump and the prospect that the Federal Reserve will have to cut interest rates.

The gap between the 3-month and 10-year yields vanished on Friday as a surge of buying pushed long-end rates sharply lower. Inversion is widely considered a reliable harbinger of recession in the U.S. The 10-year slipped to as low as 2.439 percent.

U.S. central bank policy makers on Wednesday lowered both their growth projections and their interest rate outlook, with the majority of officials now envisaging no hikes this year. That’s down from a median call of two at their December meeting. Traders took that dovish shift as their cue to dig into positions for a Fed easing cycle, pricing in a cut by the end of 2020 and a one-in-two chance of a reduction as soon as this year.

“It looks like the global slowdown worries have been confirmed and the market is beginning to price in Fed easing, potential recession down the road,” said Kathy Jones, chief fixed-income strategist at Charles Schwab & Co. “It’s clearly a sign that the market is worried about growth and moving into Treasuries from riskier asset classes.”
Uh oh...

One area that might benefit from the plummeting interest rate environment is the US housing market, which became increasingly shaky over 2018 as higher prices and rates made housing less affordable for many. Data that came out on Friday indicated that these trends reversed in February.
The National Association of Realtors said Friday that existing homes sold at a seasonally adjusted annual rate of 5.51 million last month, a decisively sharp rebound from a pace of 4.94 million in January.

The burst in sales points to the housing market regaining the momentum that it lost in the middle of 2018, after a spike in rates for home loans caused sales to slow. The February sales figures point toward growth in sales of homes priced between $250,000 and $500,000, a range that is generally affordable to middle-class families.

“This was fueled principally by an improvement in affordability resulting from a combination of slower house price gains, lower mortgage rates and more rapid wage growth,” said David Berson, chief economist at Nationwide Mutual Insurance.

Still, existing-home sales are down 1.8 percent from a year ago because of the severity of last year’s slowdown. But 30-year mortgage rates have since tumbled after peaking in early November at roughly 5 percent, helping sales to recover as that average has fallen to 4.28 percent this week, according to mortgage buyer Freddie Mac.
That jump in housing sales was one of two reasons that the Atlanta Fed bumped up its projected rate of growth for Q1 2019 yesterday, from 0.4% to 1.2%.

About 1/3 of that recent improvement is due to the improved housing figures in the last week. But if you dig into the Atlanta Fed's calculations, about 2/3 of that is due to inventories continuing to stay on the shelves, despite having inventory builds in the last 2 quarters. Which should make you wonder when orders stop being made because they're not necessary to have product ready to go.

Along those lines, another trigger for Friday’s rate inversion was a new report showing that the US’s growth in manufacturing was at its lowest levels in 2-3 years.
The seasonally adjusted IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™ ) 1 registered 52.5, down from 53.0 in February and the lowest reading since June 2017.

Softer rises in output, new orders and employment all weighed on the headline PMI in March. The latest expansion of production volumes was only modest and the least marked since June 2016.

A number of manufacturers commented on a cyclical slowdown in client demand. Reflecting this, new orders increased at the weakest rate for just under two years in March.

Growth of input buying was the slowest since May 2017, with survey respondents citing the need to adjust purchasing volumes to softer demand conditions. This helped alleviate pressure on supply chains, with lead-times from vendors lengthening to the least marked degree for almost one-and-a-half years.
So add it to the pile of evidence of economic softening that has come up over the last few months.

Also, the IRS released its latest updates on tax refunds, and they still continue to lag behind last year’s totals, down $5.6 billion as of March 15. As we have seen throughout much of this tax season, the refund amounts are basically the same as FY 2018, but the lower totals are due to 1.8 million fewer Americans getting refunds at this point of the year. Those gaps in amounts and number of refunds between 2019 and 2018 have persisted for the last month.

Yes, lots of us may have missed these bits of economic information because we were busy spending numerous hours socializing and watching hoops yesterday (guilty). But the real Madness may just be starting when it comes to the US economy and financial markets in the near future, and it's time to look to see if the lack of refunds and slowing economy starts to have its effect on many a Main Street in this country as the 2010s end.

Friday, March 22, 2019

Walker abused nationally on redistricting

Our fair ex-Guv has a new gig. And he got a lot of national attention on his first day.

Yes, ex-Guv Dropout is a lying partisan hack. But what's even more disgusting is the low opinion they have of voters as they try to slip this BS through.

Fortunately, Scotty got exposed nationally yesterday while losing in Wisconsin courts on his Power Grab. And if the WisGOPs want to play "victim" for being held accountable for their silliness, we need to be driving the nails into their cross.

Wednesday, March 20, 2019

WISGOP throws a tantrum on building projects, and blows their advantage

A few tweets on today's absurdity at the State Building Commission.

But if Vos and Fitz agree with a lot of the projects, why are they ordering their WISGOP appointees not tovote for them?

Here's the most idiotic part about this GOP stunt today. IT DIDNT DO ANYTHING! The whole thing goes to Joint Finance, and projects can be added/removed there just like it would have if the Commission signed off on most/all of the projects.

Look, I get that WisGOP may not like what Evers' did in the Capital Budget. Heck, I think it borrows too much (even if a lot of it is paid back via non-tax sources like room and board, parking, and other user fees), and is so big it gives a too-easy target for it to be criticized.

But instead of surgically improving the Capital Budget and still making the point about "overspending," WisGOP stamps their feet like children saying "NO! NO! NO!" And now the gerrymandered GOP legislators will look very foolish, while needed infrastructure continues to crumble.

I'm sick of these adolescent dopes messing up my state.

Fed speaks, Wall Street celebrates...then reality of slower economy sinks in

I occasionally look at the stock indexes while working, and around 1:15, I noticed that there had been quite a turnaround.

Huh, what happened around 2 pm Eastern?
The Federal Open Market Committee on Wednesday said it will hold benchmark interest rates unchanged at between 2.25% to 2.5%, marking the second straight pause on rate increases. This decision been widely expected by market participants.

The Fed’s latest dot plot, a chart showing each of the FOMC members’ target interest rates for the near- and long-term, pointed a median of zero rate hikes in 2019. This is lower than the two rate increases in 2019 suggested in the December dot plot, the last time the projections were released.

The FOMC also said in a separate statement that it expects to “conclude the reduction of its aggregate securities holdings in the System Open Market Account (SOMA) at the end of September 2019,” referring to its balance sheet normalization process.
Both of these items indicate that money won’t be tightened in the near future. And sure enough, longer-term interest rates took a dive, especially the benchmark 10-year note.

If you look at the Fed’s statement on their interest rate decision, while they talk a nice game about a balanced economy with continuing growth, you can tell they’re seeing some weakness.
Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.
I read that and I wonder if the Fed is a bit behind the curve on the inflation. Those lower energy prices are based on what they looked like at the start of 2019, when gas was below $2 a gallon. It’s risen more than 50 cents in my neighborhood since then, and oil futures hit $60 today for the first time in several months, meaning gas will likely continue to climb in the near future.

If inflation heads back toward the 2.5%-3% range that we saw for much of 2017, the Fed is going to have a problem. It will become stuck between keeping prices in check while not ending the Bubblicious party that’s been going on over the last 3 months on Wall Street, and turning the “slow” economy into an all-out recession.

Fed Chair Powell publicly claimed after the meeting that “all was well.”
“The U.S. economy is in a good place, and we will use our monetary policy tools to keep it there,” Powell said in press conference Wednesday. “It’s a great time for us to be patient and watch and wait to see how things evolve.”
But the Fed’s own report had them lowering GDP growth now, and for the future.

Powell’s fear of a Trump Tantrum probably kept him from outright admitting that our ongoing economic expansion is sputtering, but the bond markets sure seem like they know a downturn is coming. While the 10-year was shedding more than 8 basis points today, the 3-month note nudged up by a point.

These two fixed-income securities are now only 6 points away from each other, and history shows that when the 10-year inverts below the 3-month note (the red line on this chart), recessions follow.

Coked-up Wall Streeters may have liked the statement from the Fed today when they first heard it, but the rest of us should see major warning signs flashing. And given that the market couldn’t hold that sugar high following the Fed announcement, I think even the coke fiends know the party might be ending soon.

Tuesday, March 19, 2019

The other way Evers may have gone too far - the last few tax hikes

As we wait for the Legislative Fiscal Bureau to release its summary of Governor Evers' first budget, I wanted space to step back and go over another area where I think Evers may be asking too much - tax changes.

It's not that Evers is wrong to ask for a lot of these things- as you'll see, I think many of the provisions do a good job in trying to re-level a playing field that has been slanted far towards the rich and corporate and away from the vast majority of the rest of us. I'll start by pointing out the tax cuts, which are targeted toward the middle and working classes, and also discuss the costs of these tax cuts.

Indexing Homestead Credit
$38.9 million in year 2.

EITC Expansion
$53.1 million

Middle-class tax credit
$421.5 million in FY20 and $412.0 million in FY21.

Evers also wants to make a tax shift that moves the income tax cut passed by the WisGOPs in the Lame Duck Session from one that gives more to the rich, and redirects it so that all taxpayers get a similar tax cut. This is described in the official budget summary as follows.
The Governor recommends modifying the current law automatic individual income tax rate reductions associated with increased sales and use tax collections from remote Internet sellers, resulting from a U.S. Supreme Court decision, to focus the entirety of the cut on the lowest individual income tax bracket.
That makes for quite a bit of tax relief for people on the lower 80% of the income scale. And it is more than offset by targeted tax increases on other organizations and individuals.

Reverse M&A tax cut for manufacturers that make more than $300,000
Increase in tax revenue of $279.5 million in FY20 and $237.1 million in FY21.

Capital Gains changes
Increase in tax revenue of $285.1 million in FY20 and $220 million in FY21.

End of Private School Tuition Tax Break
Increase in tax revenue of $12.1 million in FY20 and $12.2 million in FY21.

These 3 items all reverse Walker/WisGOPs giveaways to the rich, corporate and DeVos-paid voucher school backers. All are pretty good ideas, and if that was all we had, the net effect on revenue would be an increase of around $120 million over the 2 years - much less than the $320 million saved through taking Medicaid expansion.

But then more is needed to pay for expanded health services, restoring the Fitzwalkerstani cuts to K-12 funding for public schools, and giving more aids to local governments.

So more revenue is needed. The next 2 revenue raisers are relatively straightforward, as they clarify and streamline certain provisions, and I'll go back to quoting the budget document to describe them.

E-Commerce Sales Tax
The Governor recommends clarifying current law to explicitly require Internet marketplace providers to collect and remit sales and use tax on taxable sales facilitated by the marketplace on behalf of third parties. This provision is expected to increase collection of taxes already owed to the state by $26.8 million in FY20 and $67.1 million in FY21.

E-Cig Tax
The Governor recommends the imposition of a tobacco products tax on vapor products at the rate of 71 percent of the manufacturer's list price. The tax would also apply to any cartridge or container of any solution, which may or may not contain nicotine, that is intended to be used with an electronic cigarette or similar product. The fiscal impact is an estimated increase in tax revenue of $14.9 million for FY20 and $19.8 million in FY21.

Plus there is another $6.8 million from charging cigarette tax on little cigars.

That's still not really a big deal. While I doubt the Koched-up WisGOPs would have signed off on many of these tax increases, they certainly would have been put on the defensive to do so if that's all that was in the budget. Most Wisconsinites wouldn’t be affected by any of these tax increases, but many more would receive a tax break under these provisions, and there would still be nearly $255 million more to use for schools or Scottholes or whatever. And that’s before we talk about the $325 million saved from Medicaid expansion.

But I fear this part of Evers' budget is going to hit a lot more Wisconsinites, which will allow the GOP to have a much easier talking point of “look at all these tax hikes”.

Internal Revenue Code Update
The Governor recommends modifying Wisconsin Statutes to conform with changes made to the federal Internal Revenue Code. The net fiscal impact of these changes is an increase in tax revenue of $187.9 million in FY20 and $174.6 million in FY21.

That’s a $362.5 million run up on items that aren’t adequately identified. And I fear that the LFB will show that much of it will hit workign and middle-class Wisconsinites who have lost the usefulness of their itemized deductions from the GOP's federal Tax Scam (as many of you are likely aware of if you have filed your taxes).

Those last tax hikes may make it far too easy for the GOP to say “Forget it, throw it all out. It’s $1.3 billion in added taxes, herpy derpy yadda yadda.” It also takes away the card that Evers played when he rightfully vetoed WisGOP's unfunded tax cut last month, because the added investments in Evers' budget result in a structural deficit just like the WisGOP tax cut did, even with these tax increases.

It seems like an unforced error, just like I argued that the last few spending items (or decision not to cut spending on GOP giveaways like vouchers) will make a major difference in the bottom line. Which threatens to spoil the image of what is generally a good, progressive budget that tries to reverse some of the damage of the past.

Maybe the plan was for Evers to "go big" and compromise down from there, and while I appreciate that idea (it's not like WisGOP is going to be reasonable no matter what you do), I think a few limits here and there would do a lot for the public opinion battle. And let's face it, much of what is in this budget debate comes down to PR at this point, and likely will stay that way for the next 2 years. So why give dishonest WisGOPs something to jump on when it's not really needed?