Inflation flat, incomes up, spending mediocre. So why keep rates so high?

The always-important income and spending report came out on Friday, and if you have a certain point of view, there were good numbers all around.

US May PCE: Big pop in income on the month as disposable income increased 0.5% and savings rate increased to 3.9%. Spending up 0.2%, income 0.5%, & the PCEPI was flat (-0.008%) on the month & up 2.6% (2.563%) y/y while the core ex food & gas increased 0.1% (0.083) and 2.6%…

— Joseph Brusuelas (@joebrusuelas) June 28, 2024

PCE inflation came in even lower than you would have expected from the CPI/PPI earlier this month. Core PCE was up 0.08% and overall PCE actually fell 0.01%.

Core at an annual rate:

1 month: 1.0%
3 months: 2.7%
6 months: 3.2%
12 months: 2.6% pic.twitter.com/IhcYBq7RKC

— Jason Furman (@jasonfurman) June 28, 2024

That increase in savings is a good sign, for both moderate (but not crazy) spending growth, and higher income growth. However, the one down side I saw in this report is that spending was revised down for both March and April, indicating slower GDP growth than we originally thought for Q2 (although there still is growth).

Not surprising that the Boom part of Bidenomics is over after 3 years of stimulus and job growth, and record run of sub-4% unemployment. But steady growth around 2% is fine, especially if income growth continues at a good pace.

Comversely, if you're someone who was looking for signs of what Federal Reserve policymakers may be doing in the near future, you had to like the flat inflation numbers, and the long-term trend it shows as well. Core inflation has been the high 2%s for the last year, and overall PCE inflation is also only up 2.6% over the last 12 months. In fact, since January 2023, we've not had one month where overall PCE inflation has been above 0.4%, and we've had as many months of 0.0% PCE inflation as we have 0.4% (3 each).

That's a big enough sample size to me to show that the main disruptions are over in our post-COVID economy, and if our new normal is 2.6% inflation instead of 2.0%, with solid wage growth and unemployment staying low, that's not a bad thing. The biggest economic headwind is the cost of housing, and I'd argue high interest rates are a CAUSE more than a mitigation of that at this point.

So why does the Fed continue to punish everyday Americans for inflation that peaked 2 years ago? And because I don't think Fed officials are morons, I have to ask what's the real reason the Fed is refusing to lower rates, and does it relate to November's election?

Damn straight I'm going there, especially after they caved to pressure from Donald Trump and dropped Fed Funds rates in the latter half of 2019 when they were at levels less than 1% above the core rate of inflation. That was in a time when unemployment was at similar levels to what we have today, and inflation was just under 2%. If the same rules applied in 2024 (1% Fed Funds rate above core inflation), the Fed should be dropping rates by 1.5% from where they are today.

Friday's report shows we remain in a good, growing economy, but one that isn't booming with a consumer that isn't as willing to spend as much as they did in 2023. We need a Fed that understands that growth is what is endnagered right now and not one that keeps chasing ghosts of the past, and do its job in keeping the economy on the right track.

US keeps adjusting habits, so it's cheaper to hit the road for the 4th this year

As the Fourth of July nears, it also means that we are in the Summer driving season. With a record amount of drivers expected to hit the road for the Holiday week, it seems to be a good time to check back and see what things look like on the oil and gas fronts.

One thing I've noticed is that> oil futures have gone up a bit recently, increasing by nearly 12% since hitting their lows at the start of this month. That includes another sizable increase on Thursday.

Oil futures settled higher on Thursday on worries about global crude supply disruptions as geopolitical pressure in the Middle East and Europe mounted, while a surprise increase in U.S. crude and gasoline inventories gave prices a ceiling.

Brent crude oil futures settled up $1.14, or 1.34%, to $86.39 a barrel. U.S. West Texas Intermediate crude futures settled up by 84 cents, or 1.04%, at $81.74.....

Cross-border strains between Israel and Lebanon's Hezbollah have been escalating, fanning fears that a widening war could draw in other countries including major oil producer Iran.

So the recent rise is due to nothing besides speculation and traders bidding things up.

It's sure not related to supply-and-demand, especially when it comes to gasoline usage in America. Even as travel amounts have generally gone up, Americans are using less gas than we did this time last year, and noticeably less than we did in the late 2010s. In addition, gasoline is more plentiful now than in June 2023.

So why would oil be trading 17% higher than it was a year ago? I know the oil market is not necessarily the same as gasoline, but it’s a pretty good correlation. Where’s the indication that there’s going to be some kind of supply tightness or explosion in gasoline usage in the near future?

In fairness, it looks like the gasoline futures have yet to be much different than what we had a year ago, so maybe pump prices for the rest of this Summer won’t reflect the runup in oil. And in fact, AAA says Americans are paying less than they were in gas at this time in 2023, a whole lot less than they were in 2022, and not that much more than they were at the end of June 2021.

Bottom line, Americans have adjusted their oil/gas consumption habits in the 2020s, both due to changing workplaces, but also in response to incentives the Biden Administration has put out for electric vehicles and higher fuel efficiency. It's the right direction, which insulates us from further shocks and variances in the market, and we need to stick with it.

August Constitutional amendment is more WisGOP scumbaggery. VOTE NO

In 51 days, Wisconsin voters are going to be faced with an important ballot question that was placed by the gerrymandered WisGOP Legislature, with the intent of not slipping it through without much attention. Which is a big reason why it should be given attention, and a resounding NO vote.

The ballot question seems to be tame on the surface.

Now you might think "doesn't the Legislature already do this?" And indeed, much of this is determined part of the state budget, and are OK'd by both parties without much concern, because it keeps these needed services going without having to use state tax dollars to do it. Many of these federal dollars are automatically allocated by formula through acts of Congress, and while WalletHub says Wisconsin's state government is 45th out of the 50 states when it comes to reliance on federal dollars, our most recent state budget still had over $28 billion coming from DC.

Not that the WisGOP Legislature hasn't been able to manipulate where these funds go. Sometimes this is done through budget deliberations, moving Federal block funds toward one direction and not another. The Legislature's Joint Finance Committee often has to sign off on increases in federal funding or other allocations as things change throughout the 2-year budget cycle.

For example, in 2022 the GOPs that control the Finance Committee stopped the Wisconsin DOT from using additional Infrastructure Act dollars for the unholy purpose of... improving air quality through more walking and biking trails?

For a statewide $283 million transit and infrastructure package, $4.3 million is not a lot of money.

But Republican legislators on the Joint Finance Committee (JFC), the Wisconsin Legislature’s committee in charge of overseeing the state budget, decided on April 27 to limit the use of those funds. Reversing an element of the state Department of Transportation’s spending plan, the JFC has barred the state from using these funds for bike or walking trails, public transit, basically anything other than highway right-of-way or signaling improvements, setting back initiatives to make communities more walkable, bikeable, and public transit-friendly.

The $283 million was from the federal Infrastructure Investments and Jobs Act, otherwise known as the bipartisan infrastructure bill. The $4.3 million was under the Congestion Mitigation and Air Quality Improvement Program (CMAQ), which allocates funding for states to improve air quality, either by investing in infrastructure to reduce congestion (reducing the amount of exhaust personal vehicles emit while on the road) or to improve alternative forms of transit, such as bikes, walking, or public transit.

So if fed funds are already able to be manipulated by the Legislature, why make it a Constitutional law, which makes it harder to do away with it? Marquette University Professor Philip Rocco does a great job in explaining the real reasons behind it, in an article in The Recombobulation Area.

In August, WI voters will decide on 2 constitutional amendments that affect how the state allocates federal grant $. It’s also first time amendments have been on an August primary ballot in WI.

I wrote about the amendments & their political context here: https://t.co/5NDhWYsIMm

— Philip Rocco (@PhilipRocco) June 20, 2024

Taken together, the amendments contained in Question 1 and 2 would eliminate virtually any power the governor has to allocate certain federal funds without approval from the legislature. This would represent a significant enhancement of the legislature’s power, overturning a law that has been in place since 1931, which says that: “whenever the United States government shall make available funds for the education, the promotion of health, the relief of indigency, the promotion of agriculture or for any other purpose other than the administration of the tribal or any individual funds of Wisconsin Indians, the governor on behalf of the state is authorized to accept the funds so made available.”

In other words: suppose Wisconsin experiences a natural disaster, an economic crisis, or — as happened in 2020 — both. The federal government rushes aid to the state. Under current law, the governor would be authorized to accept these unanticipated funds and allocate them to impacted businesses, communities, or individuals.

But if the amendments contained in Questions 1 and 2 pass, the state legislature would be able to insert itself into the process, preventing the governor from allocating the funds until the legislature approves.

And THAT'S the real reason the WisGOPs want to put in this constitutional change. Because Governor Evers was able to use billions COVID relief funds without interference from the gerrymandered Legislature (and especially the GOP-dominated Joint Finance Committee) as the state went through the COVID pandemic and its aftermath, it made for an efficient response that sent funds to people and sectors of the economy that were badly in need.

It is not in the GOP's interest to see the federal government and a Democratic governor actively working to get people and businesses back to work and back on their feet, and to have these programs work and have voters demand they continue in the future. So they want to be able to control every extra dollar that comes in after the budget is passed, and I would bet that the GOPs on JFC would use these new powers to do what they do best - ABSOLUTELY NOTHING.

You know, just like how they're holding up $125 million in funds to clean up PFAS in the state, and holding up $15 million in aid to hospitals in the Eau Claire area to maintain medical services in an area that had multiple hospitals and medical providers close earlier this year. Money that has ALREADY BEEN SIGNED INTO LAW, by the way.

This makes the WisGOP attempt to tie up funds scummy enough, but it is especially sleazy because they are trying to sneak through these permanent changes in an August election, as Professor Rocco points out that there will be many fewer voters at that time compared to what we'll see in November.

In 2022, just 27% of voters participated in the state’s August primaries, which was a 40-year high. Since 2000, turnout in November general elections has been, on average, three times higher than it is in partisan primaries.

In just a few months, Wisconsin voters will for the first time vote on whether to amend the constitution in an August primary election. Unlike 2022, there will be no big-ticket contests for governor or U.S. senator. Of Wisconsin’s eight congressional districts, only two (District 3 and District 7) will see a contested Democratic primary. There are three contested Republican primaries (in Congressional Districts 2, 4, and 8). Of the 99 State Assembly districts, only 21 will feature contested Democratic primaries. In the Republican column, there are 24 contested primaries. In short, August elections will likely see a turnout rate lower than in 2022.

If the WisGOPs in the Legislature believed that casual voters would go for this idea, they'd be glad to promote it as part of their re-election campaigns in November. They're not, and that should tell us a lot.

Plus, it is likely that WisGOP is trying to shove through this BS before the new legislative maps are in effect, with Dems finally having a legitimate chance to win the State Assembly, and are very likely to end the GOP supermajority in the State Senate. So the WisGOPs are trying to leave behind all of these barriers that make it even harder to reverse the garbage they put into law through their rigged maps and sketchy tactics, and keep Wisconsin from moving in a direction that their voters are asking for.

Which helps explain why they're so desperate to handcuff this state while they can. It's a sign of weakness. Needless to say, you should vote NO (HELL NO) to these amendments. And given that it's a lower-turnout election, the more that you can draw attention to this BS to casual voters, the more it has a chance of going down in flames, and further demoralizing a Wisconsin GOP that already seems to be in decline.

Housing costs keep going up despite higher interest rates....or because of them

While the overall economy continues to grow, jobs continue to be added, and inflation continue to leveling off, there seems to be one sector of the economy plagued by stagflation in the first half of 2024 - the housing market.

We got more proof of that in the later part of this week.

With the Federal Reserve making no clear commitment to when an interest rate cut may come, homebuilders are scaling back.

In May, privately owned housing starts fell to a seasonally adjusted rate of 1.277 million units, down 5.5% month over month and 19.3% compared to a year ago, according to data released Thursday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD)....

“Builders are in an ‘if you build them, they won’t come,’ market, as continued high mortgage rates keep more potential buyers out of the market,” Robert Frick, a corporate economist at Navy Federal Credit Union, said in a statement.

The number of building permits issued in May also posted monthly and yearly declines, falling to a seasonally adjusted annual rate of 1.386 million units, down 3.8% month over month and 9.5% year over year.

And it's been a consistent decline for both starts and permits in 2024, with drops in activity for multi-family units being even larger than the decline in single-family homes.

But while this portends a drop in the number of homes being completed and added future inventory, current home prices and home sales keep rising, despite the higher interest rates.

The median price of a previously owned US home climbed for the eleventh consecutive month in May, up 5.8% from a year ago, to $419,300, the National Association of Realtors said Friday. That’s the highest price ever recorded by NAR.

“Home prices reaching new highs are creating a wider divide between those owning properties and those who wish to be first-time buyers,” NAR’s chief economist Lawrence Yun said in a release. “Still, first-time buyers in the market understand the long-term benefits of owning.”….

The situation could improve somewhat later this year, when the Federal Reserve is expected to begin paring back interest rates from a 23-year high, which should bring down mortgage rates. But Fed officials have penciled in just one rate cut for this year, and the days of ultra-low interest rates are long gone. Economists don’t expect the average mortgage rate to fall below 6% in 2024.

Recent research from Zillow shows that in order for a median-income household to afford a monthly mortgage payment on the typical US home, it would need to save up more than $127,000 for a down payment. That’s roughly double the median salary of a US worker.

Potential homebuyers are indeed facing a tough market, but that doesn’t seem to be deterring some: Sales of previously owned homes in the US are up from the decades lows in the fall and only edged lower by 0.7% in May to a seasonally adjusted annual rate of 4.11 million.

And the Wisconsin Realtors Association says our state is seeing the same trends – higher prices, more sales, and homes becoming even less affordable.

May 2024 home sales rose 11% compared to May 2023, and the median price rose to $315,500, which is a 6.9% increase over the past 12 months.

On a year-to-date basis, home sales were 12.1% higher than the first five months of 2023, and the median price rose 7.3% to $295,000 over that same period.

Improving inventories helped boost sales statewide, with new listings up 4.7% compared to May 2023, and total listings up 5.4% over that same period….

The average 30-year fixed-rate mortgage rose 63 basis points over the past 12 months, hitting 7.06% in May, causing affordability to drop to an all-time low. The Wisconsin Housing Affordability Index measures the share of the median-priced home that a buyer with median family income qualifies to buy, assuming 20% down and the remaining balanced financed with a 30-year fixed mortgage at current rates. The index fell 11.3% from 133 in May 2023 to just 118 in May 2024.

And this is more proof to me that the Federal Reserve is getting it backwards when it comes to the cause-effect situation of higher, less affordable housing prices. What we need to get things more in balance is a higher amount of single-family homes onto the market, but where’s the incentive for people to sell their houses (or buy land and build new ones) when they have to take on much higher interest rates?

I’ll use our situation in Madison as an example. We bought our home in 2013, and the value has nearly doubled in that time period. We also locked into a 3% mortgage through a refinancing 4 years ago. So what incentive do we have to move from our current home to pay more for another home, and at an interest rate more than double what we’re paying now?

But the Fed is more concerned with trying to crush demand for buying homes, and are imposing economic pain and frustration on people who are already getting hurt by high rent prices and a lack of homes on the market. It’s not massive demand that is behind the absurd jump in home prices, and consumers borrowing money certainly wasn’t the reason behind the greedflation that hit the most in 2022 and whose remnants continue to this day.

It really feels like the Fed has used a 1970s playbook for a unique post-pandemic situation in the 2020s. They were slow to start to raise rates when inflation was clearly hitting in 2021, and then had to drastically raise them in order to catch up. Now they’re being caught short in the other way, and aren’t understanding that the effects on consumers and businesses for higher rates is different now (coming off of a time of historically low rates) than if we started from a higher point (like we would have in the 1980s or 1990s).

I also can’t help but notice how Donald Trump was whining about Fed Funds rates in the later half of 2019 that were 3% lower than what we have today, and got them to start cutting even before we knew COVID was a thing.

Trump demanded negative interest rates and then unironically called the Fed Chair he nominated a bonehead.

That’s an impressive lack of self awareness even from him. pic.twitter.com/cIH8z4diCK

— Angry Staffer 🌻 (@Angry_Staffer) September 11, 2019

That was a time period when unemployment was lower than it was today (3.6% then vs 4.0% now) and CPI inflation over the previous six months was only 0.1% a month lower than we have today (1.7% increase today, 1.1% in Aug 2019).

So explain to me why interest rates today are more than twice what we had before the Fed started cutting in Summer 2019? There is zero reason for this beyond an arbitrary desire for the Fed to have inflation be 2% instead of 3% (neither figure would change outcomes much), and the high cost of housing is basically the only negative part of what is still a good economic situation. I know it’s not considered proper for President Biden and Dems to complain about the decisions of the Federal Reserve, but if the Fed’s policies are something that might hurt the Dems’ chances of victory in November, why shouldn’t they be talking about the Fed’s choices? AND DO IT NOW, ahead of the Fed’s next meeting at the end of July.

After all, if Donald Trump can bully the Fed into a wrong policy in 2019, why can't Dems push the Fed to do the right thing, and cut rates in Summer 2024?

Good Wis jobs report for May, and April looks a lot better

Another Wisconsin jobs report came out this afternoon, and it was largely steady as it goes.

Place of Residence Data: Wisconsin's unemployment rate remained at 2.9% in May, 1.1 percentage points below the national rate of 4.0%. The labor force gained 900 workers over the month for a total of 3,140,500 workers. The number of people employed hit a new high in May, with a total of 3,048,000 employed. DWD last announced a record number of people employed in March 2024.

• Place of Work Data: Total nonfarm jobs decreased 1,500 over the month and increased 28,700 over the year to a total of 3,037,400 jobs. Private sector jobs added 2,300 over the month, hitting a record high 2,630,300 jobs. DWD last announced a private sector nonfarm job record in March 2024. "Wisconsin's economy continues to gain momentum, setting new records in state employment and private jobs," said DWD Secretary Amy Pechacek. "The state's unemployment rate remains below the national rate, as well. These numbers validate what we know is true: Wisconsin residents are eager to work, employers are eager to employ them, and DWD endeavors to support sustainable employment opportunities for all.

As alluded to in the Place of Work Data, the only reason there wasn't a gain in total jobs was because of a loss of 4,200 jobs in state government. And that's likely because UW graduation was on Saturday May 11, and the week of the jobs report surveys started on Sunday, May 12. So I'd expect a sizable seasonally-adjusted "gain" in state govt jobs next month to make up for that.

Even better news is that April's jobs gains were revised up by 3,600 (from 900 to 4,500), leaving us up more than 15,000 jobs since the end of last year, and with over 100,000 since the start of 2022.

Another good sign is that manufacturing has recovered all of their losses from February, and the number of jobs in that sector is back to where it was more than a year ago.

In addition, after 10 months of a plateaued level of jobs in Leisure and Hospitality, it had a seasonally adjusted increase of 3,400 for May, taking it to a new post-COVID high.

The unemployment rate staying below 3% in Wisconsin is also a great sign, although I'll note that the labor force is only up 9,600 in the last year, and employment only up 6,500 in that time, so we need to keep attracting people to come here if we wish to grow much further.

Overall, this is a good report, and Wisconsin's jobs market is still in a very good place. Seems like something we'd want to keep building on for the rest of the year.

Recent reports indicate lower growth is bigger risk than higher prices

Wanted to forward you to a couple of good posts by UW-Madison's Menzie Chinn at Econbrowser going over recent reports on the economy.

The first puts together a number of recent indicators, and gives us a mixed bag. Industrial production had a surprising increase, and finally got back to the levels we were at in Spring 2023. The payrolls numbers keep rising, but the household survey hasn't changed much at all. In addition, inflation-adjusted consumption, incomes, and sales at the wholesale level have been largely flat in the first half of 2024.

In addition, we saw retail sales for May be disappointing, with only a minor rise of 0.1%, and April's retail sales numbers were revised down to a 0.2% (seasonally adjusted) loss. Combine that with the flat inflation numbers for May, and it's more evidence to me that we have downshifted from the higher inflation of 2022-2023, and likely have also see the Biden Boom of 2021 through 2023 also cool off into a post-COVID normality.

The other post of Professor Chinn's that I want to point you toward is one that discusses the recent economic outlook released by the Congressional Budget Office.

The CBO projections are based on data available as of May 2nd. The latest CBO projection is substantially above the February projection (see discussion here), largely due to the intervening upside GDP surprises. It’s currently in line with the FT-Booth June median forecast, and the slightly below (for Q2) the Atlanta Fed nowcast. (It’s slightly above the May median Survey of Professional Forecasters estimate).

While the revised q/q growth rate projections are higher in the short term, relative to February forecast (based on data available as of January 6), then decelerate to slower rates by end 2025, implying reversion to potential. That being said, the current implicit CBO projection of the output gap is dramatically different than reported in the February Economic Outlook....

This means the CBO is projecting a positive output gap for the next year and half, under current law. For perspective, the pre-pandemic peak output gap was 0.9 ppts, while the highest in recent history is 2.4% in 2000Q2.

But that also means America's economy has been exceeding its potential in the last year, and inflation has settled into a 3% annual rate for the better part of the last year, and indications that it will fall further in the coming months. It tells me that our bigger concern should be that things slow further and we run a risk of recession, and not worry about whether inflation is 2% or 3%.

And it's all the more reason for the Federal Reserve to start lowering interest rates from these 23-year highs. Instead, Chinn says the CBO now predicts there won't be rate cuts until early next year.

That better not be true. If so, it makes me all the more suspicious that the Fed doesn't really understand what things are like for the typical American, and that they are still trapped in 1970s thinking in a 2024 reality.

Tourism keeps rising in Wisconsin. In places big and small

One thing that Wisconsin has had an impressive increase in for the 2020s has been tourism. And this week we found out that this continued with a record-breaking year in 2023.

Wisconsin’s tourism industry had a record-breaking $25 billion in economic impact in 2023, according to a new report from the state Department of Tourism.

It’s the second year in a row Wisconsin broke that record. In 2022, Wisconsin’s tourism industry had an economic impact of $23.7 billion, breaking the prior milestone of $22.2 billion in 2019.

The report found Wisconsin also hit a high in the number of overnight visitors, with nearly 46 million people staying overnight across the state last year.

“We’re becoming a little less of a hidden gem and just simply a gem. And as Wisconsin gets added to more and more people’s bucket lists, we really benefit from that exposure,” said Craig Trost, communications director for the Wisconsin Department of Tourism.

The report said the tourism industry supported more than 178,000 jobs last year. All 72 Wisconsin counties experienced an increase in economic impact.

Great to hear, let's dig into the full report to see what more we can find.

While the state had a 5.4% increase in economic impact from tourism, 3 counties had jumps of more than 10% - Monroe County (11.2%), Menominee County (10.3%) and Green Lake County (10.1%). However, Menominee and Green Lake Counties are smaller and less reliant on tourism (even those the locals probably appreciate the added business), so those 2 increases impacts totalled less than $7 million of the total increase of $1.273 billion in added impact statewide.

But Monroe County is among the 44 counties that had a tourism-related impact of more than $100 million for 2023, and when you look at those more tourism-reliant places, it's double-digit increase outpaces 2nd-place Dane County (up 8.4%), as well as the other large counties with the biggest rate of increase in tourism dollars from last year.

But Monroe County's $165 million in tourism impact is dwarfed by the biggest attractors of tourism-related economic activity in the state. As it's been for a long while, the state's 2 most-populous counties also have the largest tourism industries in the state, accounting for nearly 27% of that $25 billion impact. For the rest of the 8 counties with the largest tourism impacts in Wisconsin, it's a split evenly between smaller-population places that are heavy on tourism (Sauk, Walworth, and Door Counties), and the counties that rank 3, 4, and 6 for population in the state.

Good thing the Milwaukee area is now starting to get some of those tourism-related revenues back in the form of higher sales taxes this year. You know, like how communities around the Dells and Door County have for several years. Maybe we can get a similar deal here in Dane County instead of being faced with referenda just to keep local services at the same levels.

It also illustrates how we have essentially two types of tourism markets in the state. One is largely rural and based on the natural beauty and recreational opportunities that Wisconsin carries with it, and the other is an urban-based one based on big events, conventions and amenities that little communities don't have the ability to provide (and certainly not at the scale that a place like Milwaukee, Madison, or Green Bay can give.

The tourism figures for Wisconsin are very good news, and it tells us that we need to keep on investing in the types of resources and events that keep people wanting to visit Wisconsin....and maybe encourage a few of them of them to stay here permanently.

Elect Trump, and get 133% tariffs!

In addition to calling our state's largest city a "horrible city", Donald Trump made some other news in his visit with Republicans in Congress.

Also discussed using tariffs to leverage negotiating power over bad actors, per another person in the room

— Emily Wilkins (@emrwilkins) June 13, 2024

Trump has reportedly floated the idea of replacing income taxes with tariffs. I’ll have to write this up in detail, but my first-pass estimate is that this would require an *average* tariff rate of 133 percent.

— Paul Krugman (@paulkrugman) June 13, 2024

And there are people who think Trump is better on inflation than Biden?

In addition, nothing like reinstalling good old 19th Century fiscal policy! Given that Republicans want to bring back the economic disparities and spoils systems of the Gilded Age, I suppose it adds up.

Let's not put these guys back in control of.....anything.

Told ya! INFLATION WATCH tells us things are under control. So why are rates still high?

I've been predicting a low number for inflation in May, given the plateauing and then decline in gas prices, along with no significant changes in prices at the stores. And sure enough, look what the Consumer Price Index report told us this morning!

JUST IN: Good news on inflation. It cooled to 3.3% (y/y) in May. The gas price decline really helped. May also saw the lowest monthly inflation in more than a year (see chart)

“Core inflation” decline to 3.4% (y/y) in May —> the lowest since April 2021.

**Rent remains the the… pic.twitter.com/Fm1b7ZBU85

— Heather Long (@byHeatherLong) June 12, 2024

You can really see the inflation cooldown at last

Food +2.1% in past year -->smallest since 2020
Restaurants +4% in past yr-->smallest since 2021
Core inflation 3.4% -->smallest since 2021
Commodities -1.7% -->smallest since 2004
New vehicles -0.8% -->smallest since 2018
Pet… pic.twitter.com/aV2xUSv9cK

— Heather Long (@byHeatherLong) June 12, 2024

Even better is the fact that it was the 4th straight month that food at home (groceries, generally) did not increase, with prices for dairy products and nonalcoholic beverages falling in May. The only chronic increases remain in shelter (up 0.4% in May, 5.4% in the last 12 months) and auto insurance (up 20.3% in the last 12 months, although it did go down 0.1% in May after two sizable increases in March and April.

The flat CPI also means we had strong increases in real average hourly earnings, which went up by 0.5% in May, and reversed the downward trend of the last 3 months.

And it increased the inflation-adjusted growth in wages that we've seen in wages compared to what we had during what Donald Trump called the "greatest economy ever." Aka, before the COVID pandemic broke out.

Hourly wage gains have exceeded inflation, if the starting point is Feb 2020 pre-pandemic:
+25% Hourly wages
+21% Inflation (CPI-All)
+19% Inflation (Core; Ex-food & energy)

Workers have ~4% higher real wages (purchasing power) than in the vaunted 2019 economy. pic.twitter.com/pWmMgJ4wGd

— David Doney (@David_Charts) June 12, 2024

Seems like a good economy but not one that's overheating, with inflation staying at a manageable level. A perfect scenario for the Federal Reserve to reduce interest rates from the 23-year highs that they sit at today.

And yet later this afternoon...

JUST IN: The Federal Reserve predicts just ONE rate cut in 2024.

4 of the 19 Fed leaders predict NO CUTS
7 of the 19 Fed leaders forecast 1 cut
8 of the 19 forecast 2 cuts pic.twitter.com/GIW5NMlbsF

— Heather Long (@byHeatherLong) June 12, 2024

Summary of Fed Chair Powell today:

1) He opened the door to a September rate cut (He said 1 or 2 are "plausible" in 2024)
2) Economy remains strong. "We're getting good results here"
3) Fed needs more good data on inflation
3) He thinks labor market is back to 2019 conditions pic.twitter.com/y0fGgfZzzB

— Heather Long (@byHeatherLong) June 12, 2024

Frustrating stuff, especially since starting to lower rates would likely encourage more homeowners to be open to putting their homes on the market, and likely limit the increases in housing prices that are one of the few real headwinds in this economy.

I guess we'll have to hope for more sanguine inflation news for the June CPI report. And given how several chain stores have announced price cuts in recent weeks, and that gas prices are now under $3 in parts of Madison, it's set up to be a tame number. Hopefully that would be the final push that the Fed needs to stop chasing the ghosts of 2022's inflation, and have an interest rate policy that is in line with the reality of 2024's America.

Wisconsin wages going in the right direction

Saw this interesting headline yesterday.

A report from ADP showed that Wisconsin workers median annual pay was at $59,000 in May, a 5.3% increase from last year at this time. https://t.co/77bEklND1l

— JSOnline - NewsWatch (@js_newswatch) June 10, 2024

The June 5 report from payroll company ADP shows that the median annual pay in Wisconsin in May reached $59,000, up 5.3% from a year ago. That slightly beat out the nationwide median pay of $58,300 and 5% increases.

ADP’s report uses salary data from about 10 million employees over a 12-month period to calculate the data, it said in a media release....

That same report showed that, nationally, people who change jobs saw higher spikes than those who stayed in their jobs. While stayers got a 5% increase, those who switched jobs got a 7.8% increase.

Pretty good news for workers in this state, and all the more impressive when you dig into the report, and see that Wisconsin's 5.3% increase in median wage among its cohort of workers who stay at their jobs outpaces every other state in the Midwest.

Median annual pay increase, ADP Report, May 2024
Wis. +5.3%
Minn +5.1%
Ind. +5.0%
Mich +4.9%
Ohio +4.7%
Iowa +4.6%
Ill. +4.3%

That came a few days after the Quarterly Census of Employment and Wages (QCEW) gave a rundown of year-over-year growth at the end 2023 for the average weekly wage in all counties in the US, including Wisconsin. The QCEW said average weekly wages grew by 3.6% nationwide and 3.9% in Wisconsin, placing the state 2nd in the Midwest (just behind Iowa's 4.0% increase).

If you move that back to the end of 2019 (before the COVID pandemic), Wisconsin's average weekly wage grew by 20.76% over that four-year time period, beating the 19.37% increase in the Consumer Price Index over the same time, and just below the 21.09% increase in the US. And much like with job growth, there was wide variation among Wisconsin counties in wage growth over those 4 years, with the fastest growth happening in lower-wage rural counties (with the exception of Kenosha and St Croix Counties).

The Wisconsin counties that lag for wage growth also are largely rural, but they also include 3 counties with UW campuses, along with Waukesha County.

Yes, it's worth noting that Wisconsin's wages still are overall lower than the national average, but it is good to see that growth in 2023 was above the US average and among the best growth in the Midwest. And while not everybody's experience with inflation is the same (especially if housing, food, and gas take up more of your expenses than most people's), but in general, wages in Wisconsin have beaten inflation over the 2019-2023 period. Combine that with more jobs in that time period for the state and the country, and I'd say that's a better situation than we had before COVID became a thing.

Updated "gold standard" numbers show Wis with more jobs vs pre-COVID. But not true everywhere

Late last week, we got the full data set of the "gold standard" of job measurements, the Quarterly Census of Employment and Wages (QCEW). This included all counties in the US, and it went up through December 2023, which makes for a good place to look and see where things stood.

This is especially true since this report marked 4 years from the end of 2019, which was 3 months before businesses started shutting down as the COVID pandemic broke out full-force. And it makes a good checkpoint to see how well the country and states had recovered from the economic damage of the pandemic, if they had.

Nationwide, the QCEW says that the US had 3.23% more jobs at the end of 2023 than they did 4 years prior to that. In Wisconsin, we've grown slower in that time period, as we have for most of the last 20-30 years in both population and job growth, with a 1.19% gain in jobs under the QCEW. But some areas did a lot better than others within our state, particularly on a percentage basis.

The higher-gaining counties for jobs are mostly rural, with SW Wisconsin's Lafayette County leading the way. The exception of exurban counties such as St Croix and Calumet, and the continued growth in Kenosha County.

The counties with the highest percentage of jobs lost between the end of 2019 and 2023 have a lot more in common - a series of rural counties in Western and Central Wisconsin.

On a numbers basis, Dane County continues its trend of leading the way in Wisconsin. The QCEW says the county that includes Madison gained 7,346 jobs in that four-year period, a number that is all the more remarkable because Dane County lost nearly 20,000 in the first year of that time period, due to strong COVID restrictions and a lack of students returning to UW in the Fall of 2020.

Kenosha also has significantly more jobs than at the end of 2023, and 6 other Wisconsin counties had added more than 1,000 jobs.

On the job loss side, Milwaukee County was still at a deficit of nearly 20,000 jobs compared to where they were at the end of 2019, and some of that likely led to losses in Ozaukee County. But it's also worth noting that 3 of the 4 counties in the Fox Valley were down more than 1,500 jobs at the end of last year, and that Trempealeau's large percentage losses put it in the top 10 for overall jobs lost.

It illustrates how getting jobs and people back to Milwaukee is something that really matters when it comes to the overall economic performance of the state It'll be worth watching to see how the new sales taxes put in place for 2024 may help the chances of investments, in contrast to decades of defunding and handcuffing the state's largest economic engine.

These figures also illustrate how different the post-COVID recovery has (or has not) been for various areas of Wisconsin. Here in Madison, things seem better than ever, and jobs and new construction keep happening. But that might not be true in other parts of the state, and it makes it hard to have one unifying theme or message on the economy for all of the state's residents, because some have fallen behind in the 2020s, while others have been having booming growth.

Jobs keep getting added in May, wages up too. But not the blowout that fires inflation

Given that we'd seen evidence of the economy softening in reports over the last month, a lot of people were looking to Friday's jobs report for May to see if there was reason for the concerns to go into full-blown alarm.

But instead, we found out the jobs market was still rolling along.

Key takeaways from the big May jobs report:

The good news
1) +272,000 jobs added. Strong hiring in healthcare and local gov't.
2) Strong wage gains that are well above inflation. +4.1% in past year (and 0.4% in May alone)
3) Prime-age labor force participation highest in 22… pic.twitter.com/1QnIvFNAot

— Heather Long (@byHeatherLong) June 7, 2024

Good signs, generally. We are now more than 6 million jobs above our pre-COVID peak, a remarkable accomplishment given the large amount of Boomers that have aged out of the workforce in the last 4 years, and the fact that, you know...lots of people DIED in that time period.

And leading the way again was hiring in health care, which added another 68,300 jobs in May, and has added nearly 1.6 million jobs since the end of 2021.

It also was nice to see construction rebound from (seasonally-adjusted) flat April to add another 21,000 jobs in the sector in May. Manufacturing also had its 2nd straight month of gains in May (+8,000) and has almost entirely reversed the losses that sector suffered in Feburary and March. However, I'll note that while construction has been steadily adding jobs since the end of 2022 (384,000 since then), manufacturing employment continues to stay near its 2022 levels.

But what's up with the rise in unemployment to 4.0% (OK, 3.96%), and the losses in the labor force, with the number of "employed" falling by 408,000? Former Obama Administration advisor Jason Furman thinks it's not a big deal, and that the payrolls survey is likely more accurate on the overall picture. It also could give a clue as to what is (or is not) the potential for job growth in the economy.

Specifically the fact that the unemployment rate has been gradually rising for a year and a half is indicative of a labor market that is loosening and job growth that is slightly below steady state. pic.twitter.com/zYlQRc2LR2

— Jason Furman (@jasonfurman) June 7, 2024

The payroll survey could also be too high. It is better designed to measure levels but it cannot observe new business formation and destruction. And a direct census of payrolls (QCEW) is running lower.

— Jason Furman (@jasonfurman) June 7, 2024

So I don't think this report is quite the blockbuster that some have made it out to be. But the 0.4% increase in average hourly wages and 0.5% bump-up for non-supervisory workers is welcome recovery from the tepid 0.2% increase in April, and it will likely lead to a real wage increase when we see the CPI numbers come out next week.

It's certainly not a jobs report that you'd see if this was an economy stalling out toward recession, and let's see if a calmer inflation number for May will combine to soothe some worries people may have had as June began.

FINALLY, fake electors schemers indicted in Wisconsin. But I would hope there's more

Here’s my full statement regarding media reports today indicating charges are being filed against individuals involved in Wisconsin’s 2020 fake elector scheme. pic.twitter.com/TUSRS42KEV

— Governor Tony Evers (@GovEvers) June 4, 2024

I feel ya, Gov. Although I'd add in a side order of "WHAT TOOK SO GD LONG, JOSH?"

And only getting the 3 lawyer scumbags isn't nearly enough. There are still 10 WisGOPs that signed onto that fraud, and no Andrew Hitt, giving this act on national TV isn't going to make it OK.

Andrew Hitt, the former chairman of the Republican Party of Wisconsin says we need to move on from Trump:

“This country needs to move forward... We need faith in our institutions again. And the next president of the US needs to do that.”
pic.twitter.com/0Qj1ycNeYj

— Republicans against Trump (@RpsAgainstTrump) June 3, 2024

Oh? Is that why you gladly went along with this scheme to override the choice of the voters of Wisconsin? The criminal complaint against Chesebro, Troupis and Roman lays out how the fake elector plan was intentionally done as a pretext to throw the election results into "dispute" for Congress on January 6, and wasn't a contigency plan in case some court bought the Trump folks' BS.

It is nice to think that some of these lowlifes might be perp-walked in my town in a few months. But this can't be all we get, either. And it never should have taken this long.

Disappointing manufacturing and construction figures add to reasons Fed should cut sooner

We had some more disappointing economic news come out this morning.

U.S. manufacturing activity slowed for a second straight month in May as new goods orders dropped by the most in nearly two years, and spending on construction projects slipped unexpectedly the month before, the latest indications that a gradual slowdown in the economy is taking hold.

The Institute for Supply Management's manufacturing purchasing managers index for May fell to 48.7 from 49.2 in April, the research group said on Monday, noting an increase in references to "softening" among survey respondents. It was both the second straight decline and the second month below the 50 level that separates growth from contraction. Economists polled by Reuters had a median estimate for 49.6.

Meanwhile, construction spending fell unexpectedly for a second month in April on declines in non-residential activity, although there was an improvement in single-family home building.

That has been an ongoing trend for construction, both in the welcome increases in single-family housing (up over 20% in the last 12 months measured), but also with an increase of public sector construction in recent months, which has mitigated a drop in the value of private sector construction for the first 4 months of 2024.

Today's figures added to not-good numbers on consumer spending from Friday, and lower revisions for spending and income in previous months. And economic growth prospects are getting lowered as a result.

Together, the two reports pointed to continued sluggishness in the economy as the second quarter began. Gross domestic product grew at just 1.3% in the first quarter, and until recently had been expected to reaccelerate in the current period. The Atlanta Fed's GDP Now model, which had tracked at well above a 2% growth rate through May, was revised down to just 1.8% following the ISM and construction spending releases.

With interest rates remaining high thanks to the Federal Reserve's focus on elevated inflation, spending on manufactured products and capital projects has been sluggish. Data last week showed consumer spending on goods fell in April as households showed signs of husbanding their dwindling savings.

The decline in growth predictions as April's data has come in was a bit startling to me.

The same report that showed lower consumer spending in April also indicated that inflation had slowed down. And gas prices were lower in May than they were in April. Which makes me ask again "Why are we keeping interest rates at their highest levels in 23 years?" I also suspect that we may see slowdowns in job growth when the new figures for May come out this Friday, and while I don't think we are near recession coming, I can't ignore that data has not been as strong as we would have anticipated.

I would hope the Fed is also keeping track of this change in trajectory, and stop chasing the ghost of an inflation that isn't nearly the threat to our economy that an economic slowdown would be, especially if it happens in maufacturing and construction.

All it takes to bring Trump/GOP to justice is the willingness to do it. He ain't special.

As usual, our legacy/corporate media generally got it wrong when it came to analyzing the Trump trial, and how it was such an awful thing to have a former president face criminal charges. And that's called out in an excellent column in Defector by Tom Scocca, (PS - you need to be reading Defector, for both sports and takes on everyday life) where he says the "savvy" Acela corridor insiders really don't want to admit how simple it is to hold a powerful person accountable.

"For the past eight years, a lot of essentially simple truths were treated as matters of paralyzing complexity." https://t.co/My5ey4b3Hs

— Defector (@DefectorMedia) May 31, 2024

For the past eight years, a lot of essentially simple truths were treated as matters of paralyzing complexity. A man who ran his entire business empire on fraud, systematically cheated on his taxes, committed sexual assault, and conspired with his henchmen to obstruct justice had made himself into a presidential candidate, and then a president, and then an ex-president, and that second set of facts was somehow supposed to change the original, underlying facts. Presidents didn't do those sorts of things. Or, if a president did do those things, it certainly couldn't count—that would mean the president of the United States was a criminal, and that would mean ... well, it just couldn't.

And the correct answer was - "Why couldn't he be a criminal?" He's just a person elected by other people. He's not an immortal king. That's one of the founding principles of this country, from what I remember in my classes and my readings.

Scocca goes on to show that all it takes is for prosecutors and police to be willing to do their jobs, and ignore the outside noise about "tradition" and "institutions" and other Coastal BS. And that's why a case about what may seem like a small detail (covering up payments about an affair to keep it from getting out in the media) has turned Donald Trump into a convicted felon before the 2024 election.

While the opinion-havers were indulging themselves in mythology or fantasy—Trump as the embodiment of the will of the people, whose wrathful political power would only grow if challenged by law, or Trump as the highest of criminals, who must be punished by the highest of authorities—Bragg was putting together the documents and witnesses that would sustain 34 felony counts in a Manhattan courtroom. While the prosecutors with weightier, more historic-sounding charges were getting bogged down in their timelines and stymied by Trump's judiciary, the squalid little hush-money case kept moving.

And while the obstructionists in the federal side of the GOP have abused the DC crowd's vaunted INSTITUTIONS to insulate Trump from the consequences of his presidential-era corruption and lawlessness, Scocca points out that it's ground-level local and state lawsuits that are actually making Trump pay a legal price.

Donald Trump's political career has been one long demonstration that the legal structures that were supposed to be the bedrock of the rule of law are worthless. Impeachment was no match for a cynically disciplined political party. The Emoluments Clause and the Insurrection Clause are words on paper that the Supreme Court chose not to read. Even a well-tested prosecution machine like the Espionage Act is nothing that a determined judge can't rig her way around.

What caught up with Donald Trump was not the majesty of the republic but a civil suit for sexually assaulting someone in a department-store changing room and lying about it, and another civil suit for cooking the books on his property assessments, and now the criminal charges for covering up his hush-money payments. He is, as a matter of legal record, a rapist, a fraud, and a felon, on the edge of financial ruin and at risk of imprisonment. He might yet return to the White House, but he'll go there as a convicted crook.

This has to be a central message from Dems for the next 5 months. Some of it is about Trump himself, but suck in the rest of that rotten party with him. "Why is the entire GOP supporting this pathetic, amoral con artist whose only skill is shamelessness? What kind of weak losers would get behind this guy? And what do they think they're going to get out of it?"

All of them are the absolute dregs. No decent, self-respecting person should be associating with these grifters and BubbleWorld BSers. I am definitely staying here in Madison next month while those lowlifes are having their absurdities go on in Milwaukee.

And I sure would like to see Dems in both Wisconsin (THAT MEANS YOU, JOSH KAUL) and in DC to get a clue from what was done in these criminal and civil cases that Trump lost in New York. All you have to do is to file charges, speak the truths with force and constancy, and blast through all of the complaints by the protectors of privilege who claim it's somehow "different" when the people performing lawlessness, manipulations and thuggery are in positions of power.

This isn't a difficult concept to grasp. You just have to do it. And if Dem leaders aren't willing to take the steps to take out the trash that is making our political system fail, and stop giving impunity to people who break the law and who threaten everyday Americans for doing what their civic duty asks them to do, then GET ONES THAT WILL.

Mediocre April and lower revisions for income, spending. Fed should cut sooner

On Friday, we got the always-important income and spending report this time for April. And the figures weren’t that great.

Personal income increased $65.3 billion (0.3 percent at a monthly rate) in April, according to estimates released today by the Bureau of Economic Analysis (tables 2 and 3). Disposable personal income (DPI) —personal income less personal current taxes—increased $40.2 billion (0.2 percent) and personal consumption expenditures (PCE) increased $39.1 billion (0.2 percent).

The PCE price index increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.2 percent (table 5). Real DPI decreased 0.1 percent in April and real PCE decreased 0.1 percent; goods decreased 0.4 percent and services increased 0.1 percent.

In addition to the tepid numbers for April (both in inflation and in income and spending), the bigger story to me is previewed with this paragraph.

Estimates have been updated for October through March. For October through December, estimates for compensation, personal taxes, and contributions for government social insurance reflect the incorporation of updated fourth-quarter wage and salary data from the Bureau of Labor Statistics Quarterly Census of Employment and Wages program. Revised and previously published changes from the preceding month for current-dollar personal income, and for current-dollar and chained (2017) dollar DPI and PCE, are provided below for February and March.

I had a hint on the lower wage growth when I looked at the QCEW figures last week, and then the lower revisions of GDP that hit on Thursday were largely due to lower consumption figures. So what Friday’s report showed wasn’t that much of a surprise.

But when you put it up next to the previously-reported numbers, it should cause a slight change in your understanding of what the economy was doing at the end of 2023 and Q1 of 2024. For example, income growth wasn’t as good as we originally thought, and wages and salaries actually dropped in October 2023 and continued to lag the data that we had before Friday.

And then when you take out taxes and adjust for inflation, it shows that US disposable income is lower now than the levels that we thought we were at when 2023 ended.

On the spending side, revisions for consumption in February and March and soft numbers for April mean that PCEs are at a lower level in this report than what we thought we had in March.

So this indicates that the job market may have had a bigger slowdown at the end of 2023 than we knew of, and that Americans’ spending is moderate and not at a rate that would fire further inflation due to excess demand.

Which should make you ask why interest rates are staying at 23-year highs. PCE inflation seems to be steady at just under 3%, and GDP growth is moderating from the strong numbers we saw in the second half of 2023. We also see that pending homes sales dove in April as mortgage rates went back above 7%, as higher rates are raising the cost of buying a house and locking people into the homes in they have.

3% inflation is not anything that limits the economy, but interest rates that are higher than they should be certainly can limit it. Especially when the higher interest rates may well be a reason that housing prices stay high, which is straining everyday Americans’ pocketbooks.

While the overall economy and especially the job market is still in good shape, it doesn’t mean that things are booming like we thought they were. I would hope that the Federal Reserve would also recalibrate their understanding of where the economy stands, and lower these punitive interest rates sooner than later.