Friday, March 24, 2023

Wisconsin jobs at all-time high, unemployment an all-time low.

I keep thinking Wisconsin will see its job growth hit a wall, especially given the sub-3% unemployment rate in the state. But that didn’t happen in February, as jobs keep getting added, and unemployment went down to its lowest level yet.
The Department of Workforce Development (DWD) [on Thursday] released the U.S. Bureau of Labor Statistics (BLS) preliminary employment estimates for the month of February 2023, which showed Wisconsin's seasonally adjusted unemployment rate dropped to a record low of 2.7%.

In addition, total seasonally adjusted nonfarm jobs increased 7,500 over the month of February and 50,300 year-over-year to hit a new record high of 2,997,400. The total jobs number puts the state 3,400 jobs above pre-COVID-19 peaks.
That’s great to hear, especially following recent reports of increased layoffs being announced by state companies in 2023 (which I’ll get back to in a bit).

As the report indicates, Wisconsin now has finally passed the pre-COVID job levels slightly more than 3 years after that peak was hit in January 2020.

The record low unemployment rate of 2.7% seems like a big deal as well, especially with more people coming back into the work force last month. Which makes it all the more absurd that Republicans put an advisory referendum about making “able-bodied, childless adults be required to look for work in order to receive taxpayer-funded benefits.” But then again, that symbolic question is not about reality, and is instead a desperate attempt by WisGOPs to stir up dimwitted rubes for the April election with race-baiting BS (doesn’t feel like it’s working well).

That being said, those affected by those recent layoff announcements don’t seem to be losing their jobs until later this Spring, and the snowy, cold March isn’t going to help in starting seasonal work over the coming weeks. So let’s keep an eye out for both factors in the next couple of jobs reports. But perhaps it’s also true that those losing their jobs are quickly finding work to replace those lost jobs, and allowing for Wisconsin’s total job numbers to stay strong.

And let’s also see if we can finally get over 3 million total jobs in the state – a place we’ve never been to, which is pretty amazing given that we were less than 200,000 jobs away from that when 2000 began.

Wednesday, March 22, 2023

Fed raises again, but that's not why the market tanked this afternoon

When the Federal Reserve Open Markets Committee held their meeting this week, I figured that Chair Jerome Powell and company wouldn't back off of their rate hiking trend, even with recent instability at banks and with inflation clearly slowing down. And I was right about that, but the Fed's statement also led to lower rates on the bond market.

On the Fed's overall interest rate projections, little changed overall. But it is an odd combination of "higher rates for longer" but mixed with the idea that economic growth would slow down, and that 2024 allowing for rate cuts as price growth settles back down.

And if you watched the CNBC video, you'll notice that stocks also ticked up a bit after thre Fed's decision and Chairman Powell's press conference, as they figured things were steady enough, and only one more rate hike was priced in.

But then something else happened after Powell spoke.

And that something came in statements US Treasury Secretary Janet Yellen gave to a Senate committee, indicating that the Biden Administration would not bail out all bank depositors on their alone.
Some banking groups have urged the Biden administration and the Federal Deposit Insurance Corp (FDIC) to temporarily guarantee all U.S. bank deposits, a move they say will help quell a crisis of confidence after the failure of Silicon Valley Bank and Signature Bank.

Reuters reported on Tuesday that government officials discussed the idea of raising the $250,000 insurance limit per depositor without congressional approval following the SVB and Signature closures.

Yellen said she believed it was "worthwhile" for Congress to look at changes to FDIC deposit insurance, but declined to say what changes she thought were warranted.

But when asked whether insuring all U.S. deposits required congressional approval, Yellen said she was not considering such a move and was reviewing banking risks on a case-by-case basis.

"I have not considered or discussed anything having to do with blanket insurance or guarantees of deposits," she said.
And Wall Street threw a tantrum, causing the big losses.

For the record, I think that the $250,000 limits of FDIC insurance are probably outdated, and I think it would be a great idea for Congress to raise the fees banks pay to the Treasury in order to raise those limits. Which seems to be what they are going to try to do.

"There seems to be more commonality about what to do with FDIC than there was four or five days ago," the Cleveland Democrat told reporters Tuesday evening, March 21. "By our hearing next week, we may have some clarifying thoughts that there can be some consensus."

The Banking Committee is scheduled to hear from FDIC chair Martin Gruenberg, Fed vice chair for supervision Michael Barr and Nellie Liang, the Treasury undersecretary for domestic finance.....

"We'll examine deposit insurance coverage issues. We'll look at the role of social media. We'll consider legislation to strengthen guardrails and I'll continue pressing regulators to do a full review of those two bank failures and what is happening across the country," Brown said. "I think we could find some bipartisan solutions, perhaps on FDIC changes."

Brown said Tuesday that proposals include raising the insurance cap, eliminating the cap permanently or temporarily, and creating a different insurance category for businesses. The brunt of any additional costs would have to be paid for "by the big guys," Brown said, meaning larger banks and larger depositors.
But Wall Streeters want their bailout now, dammit! And to keep their low-rate coacine party as soon as they can.

While I also think rates are too high, my reasons are because the Fed shouldn't stop what's a very good economy in the real America, and inflation has been on the wane for 8 months, to the point that real short-term rates are very high these days. I would hope the Fed goes on pause with its next meeting in May, particularly as oil prices have fallen to their lowest levels since 2021, and as food prices are finally moderating.

To me, it's more important to keep the strong jobs market rolling along than in caring whether inflation is at 2% or 4%. Especially when interest rates are now at 5%

Tuesday, March 21, 2023

Wisconsin layoffs rising in early 2023, but also lots of hiring and job openings.

What's this from Wisconsin Public Radio? "Wisconsin layoff notices up"? And "possible economic slowdown"?
Over the first two and a half months of 2023, the Wisconsin Department of Workforce Development has seen an increase in layoff notices compared to the same period last year.

So far, 1,963 workers have been affected this year. That’s more than half of the 3,821 total employees affected by layoffs in all of 2022.

But the most recent unemployment data shows Wisconsin’s unemployment rate remained low at 2.9 percent in January — better than the 3.4 percent national rate that month — according to state Department of Workforce Development, or DWD.
That seems like a big deal, and it’s within 10% of the total number of people involved in layoff notices for all of 2021. The rate of layoffs in 2023 is more in line with what we saw in the pre-pandemic year of 2019, when more than 8,500 workers were affected (granted, over ¼ of 2019’s layoffs came from Wisconsin-based Shopko, which went belly-up that year and closed all of its department stores).

However, I also see some caveats with the 2023 layoff numbers. Nearly 1/5 of the losses are duet to Marshfield Clinic transitioning 377 workers to its Family Health Center spinoff, which starts on April 1 with no net jobs lost in the process. That’s not to say that Marshfield Clinic is doing fine, as it recently announced that 222 of its workers will lose their jobs in May across several locations in the state.

Similarly, even though Yellow Corp. is closing their freight terminal on the South Side of Milwaukee, the company says it plans to move most (if not all) of those 189 jobs to its other facility in nearby Oak Creek. So while that’s an annoying disruption, it shouldn’t cause much economic damage to workers or the state in general.

But that doesn’t mean there’s nothing to worry about. In addition to the Marshfield Clinic reductions, Hutchinson Technology in Eau Claire says it will lay off more than half of their 425 employees in the coming weeks and months, and triple-digit losses at Briggs and Stratton in Wauwatosa, Hubbell Gas Utility Solutions, and Biery Cheese in Plover are going to hit in March and April.

Of course, if job openings remain high and hiring stays strong in Wisconsin, the higher number of layoffs won’t be as much of a harm. And we know that as of January, Wisconsin’s job market was going very well. The recent state-level JOLTS report says that Wisconsin started off 2023 with the highest level of job openings (as % of total jobs) in the Midwest, and the second-highest rate of hires.

Given that our main jobs issue in Wisconsin has been a lack of available workers to fill the many needs employers have, any added layoffs later in 2023 would simply balance out the labor market, and might keep things moving without too much disruption.

But let’s check back on the WARN reports in a few weeks, and see if the higher interest rates of 2023 start to bite more. Or if the pressures that were feared at the start of the year turned out to be another false alarm, much like we’ve seen for the incredible continued growth of the job market for the last year in both the US as a whole, and Wisconsin in particular.

Monday, March 20, 2023

2 great references - 1 for the state budget, and 1 for the banks

A couple of large reports dropped last week that feel like great reference points in the coming months.

The first deals with the state budget, as the Wisconsin Legislative Fiscal Bureau has put out their 748=page summary of Governor Evers' budget. You also can click here to narrow in on specific agencies.

As the issues come up, this is a great spot to see in plain language what Governor Evers wants to do, and how much it will cost. It'll cut through a lot of spin and BS and help you understand the larger picture as well as the specific issues involved.

The other item I want to let you know about is PBS Frontline's documentary titled "The Age of Easy Money." It is a great summary of how the Federal Reserve had near-zero interest rates between 2008-2022 and pumped trillions into the economy to try to keep bamks functioning during and after the Great Recession, and to boost the economic recovery. It also touches on the Fed's recent rate-hiking spree, and how this might lead to some of the bank difficulties that we've seen.

Especially since the near-zero interest rates encouraged a whole lot of speculation and borrowing for a lot of fraud business ideas, and now there isn't money available to pay those loans back or for the low-interest debt that the banks bought last year to be worth anything today. And the Frontline report warns that we may not see near-zero interest rates any time soon, which could be a rough adjustment for the businesses and individuals that have come to depend on those low rates.

Less single homes, but a lot more multiplexes in America.

New housing numbers had a big jump in starts, but that's not necessarily what grabbed my eye. February housing and construction data should generally give you pause, since seasonal adjustments are at their highest around that time of year.

But is clear that there has been a shift in the type of homes being constructed in the last year. Since February 2022, the amount of single-unit houses that have been completed have generally drifted downward, but projects with 5 or more housing units has jumped by 72% in the last 12 months listed, driving an overall increase in new units being finished.

And it looks like the same story in the future, as the number of units currently under construction are trending even more toward multi-unit complexes.

It’s worthy to ask what that means for the housing market now and in the near future. It’s already difficult for many Americans to find and/or afford housing after a huge runup in prices in the early 2020s combined with the rise in interest rates that started last year. But if there isn’t a huge amount of inventory coming on of single-family homes, would that limit the price decline that has already started in some markets?

Also, does the trend to large amounts of multi-unit construction mean that renting can come back to being more affordable? Or at least start dominoes where previously-built units become more available as new units come around? God knows a lot of people would welcome that, as this guy’s 2010 candidacy has proven well ahead of its time.

Saturday, March 18, 2023

The lesson from bank concerns - you can't trust oligarchs and tech bros

Been busy dealing with the Madness of March over writing and other activities, and the Greatest Annual Sporting Event in America made for a nice escape. But I've certainly noticed what's going on in the financial markets in recent days, given that we just had a week where the DOW Jones was flat overall, but had 300+ point swings within most of the days of that week.

Not really fun to track on a day-to-day basis, and the nerves about some banks getting overextended and failing or needing central banks to shore them up with more money is at least annoying, if not worse.

I'm not overly great at the ins and outs of this type of gambling banking and investment games, . But I will note that it's not just a few tech-related banks on the US coasts having problems, as Credit Suisse reported difficulties late last week.
Credit Suisse confirmed in February that clients had pulled 110 billion Swiss francs ($119 billion) of funds in the fourth quarter while the bank suffered its biggest annual loss of 7.29 billion Swiss francs since the financial crisis. In December, Credit Suisse had tapped investors for 4 billion Swiss francs.

On Wednesday, Saudi National Bank, the bank's top backer, told reporters it could not give more money to the bank as it was constrained by regulatory hurdles, while saying it was happy with the bank's turnaround plan.

Credit Suisse shares have lost more than 75% of their value over the past twelve months.
And now we have reports of Deutsche Bank circling the withered body of Credit Suisse to bail it out and take those accounts.

Likewise, isn't it funny how GOP mega-donor/overall scumbag Peter Thiel led a run on Silicon Valley Bank by telling the companies he invested in to get out of the bank a couple of weeks ago.
Thiel's Founders Fund is thought to have propped up several startups that banked with SVB, which provided banking for nearly half of all US venture-backed startups, per its website. The fund had also called for its startups to withdraw their funds from the bank as well.

Bloomberg reported that VC funds Coatue Management, Union Square Ventures, and Founder Collective had all told their portfolio companies to pull their funds from SVB.
If I was a conspriatorial-type person, I'd almost say that Thiel would be fine with trying to cause chaos in the economy to hurt Joe Biden and grab more power for oligarchs like himself. Especially when former US Labor Secretary Robert Reich reminds us of what Thiel has previously said and done.
Peter Thiel, the billionaire tech financier who is among those leading the charge, once wrote, “I no longer believe that freedom and democracy are compatible.”

Thiel is using his fortune to squelch democracy. He donated $15m to the successful Republican Ohio senatorial primary campaign of JD Vance, who alleges that the 2020 election was stolen and that Biden’s immigration policy has meant “more Democrat voters pouring into this country.”

Thiel has donated at least $10m to the Arizona Republican primary race of Blake Masters, who also claims Trump won the 2020 election and admires Lee Kuan Yew, the authoritarian founder of modern Singapore...

Thiel and his fellow billionaires in the anti-democracy movement don’t want to conserve much of anything – at least not anything that occurred after the 1920s, which includes Social Security, civil rights, and even women’s right to vote. As Thiel wrote:

The 1920s were the last decade in American history during which one could be genuinely optimistic about politics. Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women – two constituencies that are notoriously tough for libertarians – have rendered the notion of “capitalist democracy” into an oxymoron.
Remember what happened to the economy at the end of the Gilded 1920s, a time when "real [male] leaders and optimistic job creators" controlled everything? It wasn't good.

Then add in the reality that the Federal Reserve kept interest rates near 0% for 2 years, even as the economy had picked up and the Biden/Dems in charge of DC had put in massive stimulus to bring the country back from its COVID-related doldrums. Tech bros used the rock-bottom interest rates to borrow at ridiculously low levels, and then as their products became less needed as the COVID pandemic faded, and the "optimism" about their "disruptions" didn't work out, they have little money coming in to justify the inflated stock prices.

Which is why I like to look at the S&P price-to-SALES ration to get insight on legitimate stock valuations. And it looks like a deflated Bubble over the last year.

Tech bros, bankers and other "great men" shouldn't be trusted to make things better for the Real America. But here was Donald Trump, all Republicans and too many Dems giving the green light in 2018 to allow for a lot of banks to play faster and looser with the money of depositors, and allowing someone like Peter Thiel to tank these banks with a couple of whisper campaigns and clicks of a mouse.

One Wisconsin Congressman in particular was glad to be seen supporting the changes, right before he skipped town to get paid on the East Coast.

But yet central bankers and other connected oligarchs think the big problem in our economy is that everyday people are getting 5% wage increases in a time of 4% inflation? As Jon Stewart told former Treasury Secretary Larry Summers recently - you guys need to get real about what's happening here.

Wednesday, March 15, 2023

Inflation keeps fading in February, with even better outlook. STOP TIGHTENING

Given that January’s figures put us back on INFLATION WATCH in America, this week’s releases of February’s Consumer Price Index and Producer Price Index were eyed to see if those higher numbers from January would continue, which could drive the Federal Reserve to keep raising interest rates throughout the first half of 2023.

First up was the CPI, and it leveled off from the January increase that alarmed many on Wall Street.
The Consumer Price Index (CPI) revealed headline inflation rose 0.4% over last month and 6% over the prior year in February, a slowdown from January's 0.5% month-over-month increase and 6.4% annual gain. Both measures were in-line with economist expectations, according to data from Bloomberg.

The 6% jump in inflation marks the slowest annual increase in consumer prices since September 2021.

"Core" inflation, which strips out the more volatile costs of food and energy, rose 0.5% over the prior month in February and 5.5% over last year, marking the smallest 12-month increase since December 2021. Economists had estimated "core" inflation would rise 0.4% on a month-over-month basis and increase 5.5% compared to February 2022.
You can see the steady decline in the 12-month price change since inflation peaked in June.

And then going inside that 0.4% increase in CPI, I see positive trends. February’s 0.3% increase in “food at home” was the smallest since May 2021, with fresh fruits and vegetables going down, and egg prices starting to come back toward earth with a February fall of 6.7%.

The “core” increase of 0.5% also is misleading, as much of that is due to the shelter category, and Investopedia is among those who remind us that higher “shelter” costs (reflected in a measure called Owners’ Equivalent Rent, or OER) aren’t necessarily higher costs for people in the real world.
For most goods and services, the process of recording prices is relatively simple: The bureau sends someone to a store, or calls a business, to see what they are charging for a bag of rice or to send a plumber out to repair a leaky faucet. Recording housing prices isn't as straightforward. The bureau measures actual rental rates for houses, and, using that data, estimates how much owner-occupied houses would rent for if they were put on the market.

“It's a little bit of a fuzzy metric,” said Ryan Sweet, chief U.S. economist at Oxford Economics.

OER is effectively the rent that the homeowner is giving up by living in their house instead of renting it out. It’s influenced by housing prices, but not directly tied to it….

As a result of its methodology, the all-important OER measure tends to lag behind movements in nationwide home prices by about a year. It took a long time for the pandemic-era surge in home prices to show up in the Consumer Price Index, and it will likely take a long time for the recent cooling of the housing market to show up as well.
So this will also mean that CPI will cool down in the coming months based on this lagging OER measure alone. And given that many Americans are locked into fixed-rate mortgages and/or year-long leases, it is unlikely that they actually paid 0.8% more in shelter costs in February 2023.

Then on Tuesday, we got information on Producer Prices, and that had even better news for those worried about inflationary pressures.
A key measure of inflation fell dramatically in February, according to the latest Producer Price Index, which tracks what America’s producers get paid for their goods and services.

Producer price increases slowed to an annual pace of 4.6% last month, significantly lower than the downwardly revised 5.7% in January, the Labor Department reported Wednesday. February prices fell by 0.1% after rising by a downwardly revised 0.3% in January.

Economists surveyed by Refinitiv had been expecting the 12-month rise in wholesale prices to slow to a 5.4% increase.

Taking out the often volatile food and energy components, core PPI also notched some stark declines: Annual price increases dropped to 4.4%, and the index was unchanged from the month before (0% growth). Those are down from January’s downwardly revised 5% annual price gain and 0.1% monthly increase.
So businesses aren’t seeing their costs for products in going up. That declining trend in PPI has been going on since June, with no one month having an increase in final demand above 0.3%.

The total increase in PPI in the last 8 months is less than 1% for the last 8 months measured, which translates to around 1.5% on an annual basis – below the Fed’s already-low 2% goal.

Of course, these CPI and PPI reports predate last weekend’s closures of a couple of banks , whose problems seem related to the Fed’s higher interest rates leading to those banks’ bond holdings being worth less, and lower amounts of lending (because it’s more expensive to borrow money).

And the banking fears now feed back into INFLATION WATCH, as oil plummeted Wednesday. Futures dropped down below $67 a barrel on Wednesday before recovering some losses and closing over $68. That's a lower closing price than we had at any time in 2022.

The news of the last week shows the folly of the Fed chasing last year’s inflation by continuing to increase rates today. Not only do we have 8 months of calmer inflation with little to spark it back up, but we also have banks and other businesses suffering because interest rates have gone up so fast and so quickly.

Well past time for Jerome Powell to stop the 1970s mentality, deal with 2023’s reality, and BACK OFF.

And now, a quick sports take on #12

A new type of March Madness hit this state's sports and news wires just after noon today.

No surprise on any of this, and of course Rodgers did it in typically eye-rolling fashion - using his segment on the Pat McAfee Show to make the announcement, with a nice side-order of victimization.

So Rodgers went from 90% retired (pre-darkness) to wanting to play for the #Jets. Interesting turnound. Sounds like a guy who is motivated to prove the #Packers wrong. @PatMcAfeeShow

— Rich Cimini (@RichCimini) March 15, 2023

Rodgers was leaning toward retirement when he arrived at the darkness retreat? I don't buy that for a second, and then he claims he only found out the Packers were looking to trade him when he came out of there a couple of weeks ago? Riiiiight.

As a Packer fan, this was a long time coming, starting with the original sin of drafting Jordan Love in the first round back in 2020 - a stupid move that pissed off Rodgers and wasted a chance to immediately improve a team that was one game away from the Super Bowl. Rodgers responded with 2 great seasons in 2020 and 2021, but he also flamed out in the playoffs in both years (he was outright bad in that Niners game in 2021).

Then things got worse. One year ago today, it seemed like the Packers were going to go full out for one last chance at a title when they signed Rodgers to a 3-year, $150 million contract extension. Which made it all the more perplexing when the Pack traded All-Pro receiver Davante Adams for draft picks a few days later.

After the mixed messages that the team gave going into the 2022 season, there was definite decline for both Rodgers and the team, with the year ending with another loss at Lambeau in a win-or-go-home game.

This just seemed like a relationship that had run its course. It happens, both in sports and in life. I just hope the Pack get a 1st round draft pick in THIS year's draft and other usable assets in return for trading Rodgers to the Jets, and that's what I'm paying attention to in the coming days and weeks.

Likely in the next few years, the memories of Rodgers diva behavior and tech-bro-type weirdness and conspiracy theories should fade for me, and I'll remember Aaron Rodgers for on-field brilliance that I would argue even surpassed Brett Favre's career (Rodgers never had the level of INTs and meltdown games that Favre had). I hope I'll be fired up to see him enshrined in Canton some time in the early 2030s. But for now, I'm just glad this saga is winding down.

Monday, March 13, 2023

New jobs numbers show Wisconsin doing even better, but also hitting our limits

Late last week, we got some updated data on the jobs market in Wisconsin. And much like with the country as a whole, jobs kept coming in and unemployment is staying at or near record lows.
The Department of Workforce Development (DWD)...released the U.S. Bureau of Labor Statistics (BLS) preliminary employment estimates for the month of January 2023, which showed Wisconsin added 4,100 nonfarm jobs over the month and 55,800 jobs over the year.

The data also showed that Wisconsin's unemployment rate fell to 2.9% for January, down 0.1 percentage point from the revised 3% in December 2022. The state's labor force participation rate for January was 64.5%. Nationwide for the month of January, the unemployment rate was 3.4% with a labor force participation rate of 62.4%.
Pretty good situation to be in, to be sure.

The reason we didn't find out about January's state jobs numbers until last week is because of the annual benchmarking for state figures, which follows data from the "gold standard" Quarterly Census of Employment and Wages (QCEW). Those figures run through the end of September, and came out on a statewide level in late February. With a year's worth of revisions, we can get a more accurate look at where our jobs market has been, and is at today.

What we find is that Wisconsin did not have the losses that were initially reported for the end of 2021, and instead jobs went up by nearly 29,000 between July 2021 and January 2022. After while January gains were revised down slightly (by 5,000), we still added nearly 57,000 jobs last year. And we are well ahead of where we thought we were with the original data.

The household survey that translates into the unemployment rate also was given benchmark revisions with January's survey, and those revisions indicate that Wisconsin's labor force peaked at a lower level than we originally thought, which means we didn't see as many dropouts from the work force as we thought.

Those revisions also indicate that even fewer Wisconsinites were out of work in 2022 than we thought, and was back on the decline as the year ended.

So our workforce capacity in Wisconsin may well be even more maxed out than we thought, which means that we need to find ways to get more people into the state and the work force in order to keep growth going.

Which makes it all the more absurd that the "business leaders" at Wisconsin Manufacturers and Commerce are throwing millions of dollars behind Dan Kelly's Supreme Court campaign. How is supporting a "Justice" who would continue the state's abortion ban, let polluters and exploitive firms do wahtever they want without punishment, and uphold gerrymandered maps that keep regressive Republicans in power attractive to potential workers in any way?

The LAST thing we need is more of the WisGOP status quo agenda that isn't favored by the majority of Wisconsinites, and is repellent to others that might want to come here. As these revised employment figures show, Wisconsin has already had a strong recovery from the COVID cutbacks, but we are now at a new stage where we need to boost the number of people that are living and working here. If not, we will not be able to grow much more, and will stagnate while other places keep growing.

Sunday, March 12, 2023

US budget deficit keeps rising in '23. It ain't just spending, it's the Fed and more refunds

With President Biden releasing his budget last week, the CBO budget review for February gives us a good update on where our budget deficit is. And it seems like the deficit is quite a bit higher than last year, which would put in another layer in the upcoming high-stakes budget talks.

To start with, tax revenues continue to lag, which is odd given the strong wage and job growth that continues in the country.

That's a relative tame increase in withheld payments, but it's at least an increase and somewhat understandable. What's causing that decline outside of withheld payments? One is due to higher refunds than in the 2021 tax year, and the other is due to 2022's and 2023's higher interest rates.
• Individual income tax refunds more than doubled, rising by $68 billion, thereby reducing net receipts. The precise timing of refund payments varies from year to year, but most will be paid in the period from February through April. The Internal Revenue Service reports that the number of refunds issued through the fourth week of February was 18 percent greater than in the same period in 2022. Average amounts refunded so far in 2023 are about 11 percent smaller, in part because the pandemic-related recovery rebates (also known as economic impact payments) and the expanded child tax credit have expired. …

• Remittances from the Federal Reserve decreased from $48 billion to less than $1 billion. Higher short-term interest rates raised the central bank’s interest expenses above its income, eliminating the profits of most Federal Reserve banks.
That's some of the reason for the jump in the deficit. But increased spending also is playing a significant role, led by the “big 4” – Social Security, Medicare, Medicaid, and Interest on the debt, and a one-off item.

A lot of this increase in Social Security and Medicare are related to the big inflation-related jumps in benefits to help seniors for 2023, and Medicaid is still paying expanded federal costs for continuous enrollment (which is going to be rewound in the coming months), and you can thank Jerome Powell and the Fed's rate hikes for the increase in interest costs on the debt.

But what’s that “Spectrum Auctions” item? The CBO explains.
The largest increase in outlays was related to receipts from the auction of licenses to use the electromagnetic spectrum. Proceeds from such auctions are recorded in the budget as offsetting receipts—that is, as reductions in outlays. In the first five months of fiscal year 2022, receipts totaled $81 billion—all recorded in January. No such receipts were collected during the first five months of 2023, resulting in a net increase in outlays.
What's concerning is that this big jump in overall spending is happening as other areas of “spending” are being cut due to the end of COVID-era stimulus.
Outlays for certain refundable tax credits totaled $84 billion—a decrease of $69 billion, or 45 percent. That reduction occurred because the expanded child tax credit has expired. (In tax year 2021, eligibility for and the size of the child tax credit were expanded, and advance payments were made between July and December 2021.)

Outlays from the Public Health and Social Services Emergency Fund decreased by $34 billion (or 66 percent), as expenditures decelerated for several pandemic-related activities, including reimbursements to hospitals and other health care providers, spending on coronavirus testing and contact tracing, and development and purchase of vaccines and therapies.

Spending by the Small Business Administration decreased by $15 billion, or 94 percent. In the first five months of fiscal year 2022, that agency recorded nearly $16 billion in outlays, mostly for disaster loans and for grants to operators of shuttered entertainment venues. Those outlays declined toward the end of fiscal year 2022, and there has been little such spending in the current fiscal year.
As mentioned earlier, there is some more fiscal restraint coming in Spring 2023, with expenses in SNAP and Medicaid likely to level off and decline vs last year as those expanded benefits and automatic enrollments in those respective programs go away in March and April.

While that's good fiscal news, the deficit is still certainly on the rise, and the higher interest rates complicate this due to adding expense onto the debt. Which makes for a chicken-egg question about whether the higher deficits lead to higher inflation, and so that’s why the Fed should keep rates high to slow down that type of inflation (I generally disagree witht his idea, other than deficits leading to some higher demand). Or does it mean the Fed should back off on these higher interest rates because it’s causing higher expenses and making the deficit “problem” worse? (that's where I'm at)

The higher refunds is also something to look at, both now and in the future, because extra added refunds might mean more “extraordinary measures” have to happen by the Treasury to keep from going over the debt limit, since more cash is going out the door. Or we hit the debt limit sooner, and/or refunds get slowed down to stay at/under that limit.

It also definitely means this isn't the time to bail out one Silicon Valley Bank and the boom-bust tech and start-up schemes that those funds were pulled into. Not only is it rewarding sketchy business procedures, we also literally might not have much money available to do it, at least in the coming months.

Saturday, March 11, 2023

US job growth keeps rolling along in February

It was another "Jobs Friday" yesterday, this time for February. And the US jobs market continues to be in a very good place.

So this might be the first indication of all of the reported tech layoffs appearing in the jobs reports. Also note that services continue to see jobs come back (especially in hospitality sectors), and even retail recovered after losing jobs through much of 2022.

February is also a good month to look at for another reason, because February 2020 is when employment peaked before the COVID-related shutdowns and adjustments. We exceeded that February 2020 peak last June, and are now up by nearly 3 million jobs (and 3.355 million in the private sector).

Even the increase in unemployment happened for the "good reason" - more Americans entered the work force, and about half of them got jobs.

But the overall employment-population ratio is down by nearly a full point compared to February 2020, which is indicative of the demographic challenges and post-COVID changes that have happened in this country. So we really don't have a large number of prime-age workers on the sidelines, but we do have more people to serve with less people available to do so.

That could be a good thing for workers, because it may make it more difficult to lay people off and/or have them suffer through longer lengths of unemployment, because the demands remain with fewer workers available to replace and/or compete for open positions.

But hourly wage growth also moderated (+0.24%), and really isn't causing any type of wage-price spiral. Combine it with the best job growth in decades, and it's something that both central bankers and workers should be happy about.

As I've said before, why would we keep jacking up rates to stop what seems to be a great economic situation? In February 2023, it looks like we continued to have strong job growth, good wage growth, and nothing to stop inflation from continuing to drift down from its highs in June. Let's take it and keep on rolling.

Thursday, March 9, 2023

Policy Forum crunches the big numbers, shows Evers nor WisGOPs can get all they want

Wanted to draw attention to the Wisconsin Policy's Forum breakdown of the 2023-25 budget. This is a really good high-level view of the budget across a lot of areas.

We’ve talked a lot about the one-time increases in GPR spending and the trading of lower/middle-income tax cuts for the reversal of previous tax cuts to the rich and corporate. But the Policy Forum also talks about all of the funds that go into this budget, which goes beyond the state-level taxes that make up most GPR.
The proposal also calls for the biggest spending increase on record when all types of state revenues are considered. The state’s so-called “all funds budget” includes GPR revenues, federal aid, segregated revenues such as the gas tax and hunting and fishing licenses that flow into stand-alone state funds for transportation and conservation, and program revenues such as university tuition and inspection fees. As shown in Figure 3, the proposed expenditures across all state funds would rise by a historic 17.9% over base levels in 2024 to $52.1 billion, before a slight decline of 0.8% to $51.7 billion in 2025….

In the first year of the budget, while both GPR (up 23.2%) and federal revenues (21.9%) would account for by far the largest portions of the all funds spending increase, there would also be increases in program (6.2%) and segregated (2.7%) revenues. However, all types of revenue except federal would peak in FY 2024 and slightly decline in FY 2025.
The Policy Forum says both Evers’ budget and the GOP’s flat tax scheme are both unsustainable, as they will have spending exceed revenues in 2025 and future years. And that the flat tax scheme is more damaging to the budget long-term.
Under the governor’s proposal, however, the state would draw down its general fund balance to help cover new spending on education, local governments, transportation, and a variety of other priorities. As Figure 5 shows, the drawdown would occur because proposed spending exceeds revenues by nearly $5.2 billion in 2024 and $1.3 billion in 2025. That would amount to the largest imbalance of any budget on record….

Republicans have said that they will remove or reduce many of the governor’s spending increases, which on its own would lessen the drawdown of state reserves and make the budget more sustainable. However, Senate Republicans favor a plan to shift the state’s income tax to one flat rate, a proposal which as we previously noted would lower state revenues by a projected nearly $5 billion over the 2023-25 budget and then by $9.4 billion in the 2025-27 budget, even before any cost to continue current services had been considered. This would likely make the overall budget even more difficult to sustain.
Which probably explains why the WisGOP Chairs of the Joint Finance Committee are already saying they're not likely to put the flat tax in the budget, because they know what a fiscal and political loser it is.

The Policy Forum also puts numbers and pictures behind the skyrocketing amount of surplus funds that are in the state’s bank and savings accounts.
Over the past two decades, Wisconsin’s budget reserve totals have gone from being one of the very worst in the country to being well above average. The state’s general fund is projected to close the 2023 fiscal year on June 30 with a balance of nearly $7.1 billion and a rainy day fund balance of $1.7 billion. The total reserves of more than $8.8 billion would be more than 1,900 times larger than at the close of 2005 and amounted to an unprecedented 44.7% of 2023 general fund spending, or gross appropriations. That is the highest level in Forum records going back 40 years.

And that $1.7 billion in the rainy day fund also gains interest over time, which means that it could well be closer to $1.9 billion by the end of the 2023-25 budget, even without an extra deposit from the General Fund (and Evers wants to put in another $500 million to it). So even if we knock down a decent amount of the $7.1 billion that is projected to be in the General Fund on June 30 over the next two years we should have plenty of cushion to deal with any economic difficulties or needs, and can still invest a lot more than we are.

Given these parameters, the real story is what kind of compromise results during the budget debtate, since there is clearly a way to increase investment, cut taxes, and to keep the budget structurally balanced. If we want the numerical measure of having a similar amount of revenues and expenditures at the end of the 2025 Fiscal Year, then let’s shoot for that as a total number, and we can still do a lot to reverse the damage from the 12 years that we have lived under Walker/WisGOP neglect.

Tuesday, March 7, 2023

Why does Jerome Powell think 4% inflation is a problem? It wasn't in the '80s.

Given the cross-currents of moderating inflation but a still-strong economy in recent months (especially in the jobs market), let’s see what the Fed Chair had to say on Capitol Hill today.
Federal Reserve Chairman Jerome Powell told lawmakers Tuesday that policymakers may have to speed up their interest rate hikes to tame high inflation.

With prices continuing to rise at a yearly pace of 6.4%, according to government data, Powell warned that it may take time for Americans to see further relief.

“The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Powell told the Senate Banking Committee, referring to the central bank’s target inflation level.

Speaking in the first of his two days of semiannual testimony to Congress on interest-rate policy, Powell said the Fed could again increase the size of its interest rate hikes if it doesn’t see stronger progress on lowering inflation in the months ahead.

Wall Street sure got the message, and the DOW Jones dropped by nearly 575 points. I want to unpack a couple of items out of those four paragraphs.

First of all, NBC reporter Brian Cheung wrongly states that “prices are “continuing to rise at a yearly pace of 6.4%.” Prices have gone up by 6.4% in the last 12 months, but that is wildly split between what happened in early 2022, and later 2022 into January 2023, and inflation is much lower than a 6.4% pace in the last 6 months.

Total increase in inflation, US
Jan 2022 - July 2022 4.3% (8.6% annual rate)
July 2022 - Jan 2023 2.0% (4.0% annual rate)

And February seems likely to have relatively low inflation (especially with gas prices declining that month), and keep us at or below that 4% annual rate of inflation. So why would we have Fed Funds rates continue to go up, and zoom well past 5%?

Second, why is 2% inflation such a magic mark, anyway? In late 1984, Ronald Reagan won big by proclaiming it “morning in America”, with an allegedly booming economy. That “boom” included 12-month inflation being over 4% the entire year, unemployment staying over 7%, and John Mellencamp writing this song about farmers losing their land.

The 12-month increase in America’s median weekly wage for full-time workers was 5.4% in the quarter when it was Morning in America. Which is much less than the 6.9% increase in Q3 2022, or the 7.5% it increased in Q4 2022. And new revisions, overall incomes rose at a 6.5% annual rate between July 2022 and January 2023.

So if early 2023 has Americans seeing their incomes/wages rise by 6-7%, and corporate profits continuing at their record-high levels, what is so worrysome about 3% or even 4% inflation? Especially in a time when the labor market has much less slack and more participation from working-age Americans than it did in 1984.

I’d want to keep that situation going as long as possible, and I sure wouldn’t want to crash housing and asset markets, and increase the chances of layoffs in construction and other interest-rate sensitive sectors. Instead, the Fed's actions have encouraged the 30-year mortgage rate to reach 7% in late 2022 for the first time in 20 years.

And for what? To say “I got inflation down from 4% to 2%!”

Lastly, the brakes are already happening from the fiscal side, especially among lower-income Americans. Expanded SNAP benefits expired last week, and as many as 14 million may be cut off of Medicaid in the coming months, and will have to figure out a way to get themselves and their family insured (IF they figure out a way).

So continuing to hike rates to deal with an inflation that peaked several months ago seems very dumb, especially in a time when the working-age population is a much lower proportion of the work force than it was when Boomers were in their 20s, 30s, and 40s. Why is Jerome Powell thinking that we are in the same circumstance as the 1970s or 1980s, when the situations are very different?

On a related note, why aren’t we telling the truth about how the US economy is an even stronger place than a time when we claimed it was Morning in America with seemingly unlimited growth (and plummeting interest rates) ahead? And that 4% inflation with continued growth will be a whole lot easier to deal with in 2023 than 5% unemployment with growth going away.

Sunday, March 5, 2023

Robbin' Vos thinks tolling is the answer for WisDOT. But we're already much better off than we used to be

Among a list of budget talk that Assembly Speaker Robbin' Vos gave last week, he discussed transportation funding in Wisconsin. And Vos resurrected an idea that was talked about a lot in the 2010s, but not a lot in the 2020s.
Assembly Speaker Robin Vos, R-Rochester, has unsuccessfully pushed for tolls in Wisconsin for a decade. He downplayed its chances of ending up in the final 2023-25 state budget but told reporters Wednesday he would try.

"I'm going to look at it again," he said after speaking. "I am going to make an effort to say we need to figure out a long-term answer, but I have had challenges. I don't think Governor Evers is necessarily there. And I'm not sure my Senate Republican colleagues are necessarily there. So I certainly am going to keep trying to talk about it because we have to pay for our roads. It can't just be more money from the federal government when we know that that spigot eventually is going to end."....

Vos said Wednesday if lawmakers had agreed to implement a tolling system a decade ago when the idea was last robustly considered, the transportation system would be "fully funded."

"Imagine it's 2013 when we first started talking about tolling — we have more money than local roads," Vos said. "We have a system that would actually work over the course of the next 100 years as we decide whether or not to transition away from gasoline. We couldn't get that done. Unfortunately, we now sit with a worse problem 10 years later."
I'm not opposed to tolling as a theory, because I think that WisDOT should be given a more consistent form of funding that doesn't rely on the gas tax, especially in a time when gas consumption continues to fall, and tolling can be one of those ways. But Vos is dead wrong when he says we have "a worse problem" today. We are in a much different circumstance than we were when WisDOT released their tolling study in 2016 (here's the summary of it, if you want to check it out).

In 2016, because Scott Walker refused to raise any type of taxes or fees to fix the roads, we were borrowing hundreds of millions of dollars in each budget to pay for projects, and weren't getting additional help from DC to pay for those roads. You may remember this situation, where Walker was making these policy decisions from his typical location - Fantasyland.

That's not the case today. When Evers took office, he and the GOP Legislature raised registration fees on conventional vehicles, and gave the largest increases to hybrid vehicles, to make up for the fact that they don't pay nearly the amount of gas taxes as the majority of vehicles. They also raised title fees by $95, and gave slight increases to some truck fees. These measures were estimated to bring in $217 million for Fiscal Year 2021 (and likely is more today, with the increase in hybrids among Wisconsin drivers).

The state is also seeing a significant boost in assistance from Washington, including an additional $181 million from the Bipartisan Infrastructure Bill for this year, and a similar (if not larger) amount coming in for the next 3 years. So that assistance allows for more of a fiscal cushion for the state to fix its roads and provide other transportation services.

Lastly, Governor Evers has started to reduced the costs of the huge debts that were taken on in the Transportation Fund in the Walker years. You can see how the amount of money needed to pay off WisDOT debt grew by over $100 million dollars in Walker's last 6 years in office, which meant that there wasn't much more in state funds that could be used for WisDOT to actually do something. That amount of "usable revenue" has gone up more than $250 million since Evers took office, due to the revenue enhancements, and a lower need to pay off debt.

In addition, Evers is planning a couple of budget moves to make things even better for the Transportation Fund.
Gov. Evers is proposing using nearly $380 million of the state’s historic surplus to pay down debt in the transportation revenue bond program, allowing funds currently devoted to debt service to become available for improving Wisconsin roads and saving the state money on future interest payments.

Additionally, the governor proposes providing two new sources of revenue to fund infrastructure improvements throughout Wisconsin and maintain a healthy transportation fund, including:
An amount calculated from the state sales tax generated by the sale of electric vehicles; and
A transfer of a portion of the state sales tax on the sale of auto parts, tires, and repair services. These transfers will allocate nearly $190 million from the general fund to the transportation fund over the biennium. So things are in a much better place for WisDOT's funding vs where we were when the last tolling study came out in 2016, and we don't need it in place today. Then again, we wouldn't get tolling today even if it got approved in this budget. The 2016 tolling study said it would take several years for the tolling infrastructure to be set up, and that the state would have to throw in hundreds of millions of dollars before they ever got any money back from a toll.

Maybe Robbin' Vos is thinking about what to do with the Transportation Fund in 2030 (especially if Congress decides to stop funding infrastructure), and that's not a bad idea from an academic standpoint. But in 2023 Wisconsin, things have improved so much compared to the Walker years, that tolling isn't something that we would need to fix more of the damn roads.

Friday, March 3, 2023

Vos claims Evers does "phony math", but budget has Wis in a better future spot than WisGOP schemes

2 weeks after Governor Evers introduced his 2023-25 state budget, Assembly Speaker Robbin' Vos claimed we really don't have the money to do a lot of what Evers wants to do.
During a roundtable with other leggie leaders Wednesday, the Rochester Republican blasted Dem Gov. Tony Evers’ budget for using “phony math.” He argued there’s nowhere near enough revenue to fund Evers’ proposals, even just on K-12 spending. He also tried to low>er the expectations of local government groups looking for more state funds.

“I think at the end of the day, we will try to prioritize the increases in local government spending,” he said. “But if I was sitting here and speaking to the Wisconsin Association of School Boards, they’re going to want an increase in spending too. And if I were talking to the Wisconsin Towns Association, they would like more money as well.”...

Vos argued Evers’ budget would put Wisconsin in a more than $1 billion structural deficit within two years, leaving no money for new programs.

“Anybody think that’s realistic? It is not,” Vos said. “So I just wanted to start with a reality check on where the budget actually is.”
As Sam Kinison might say, "Is he riiiight?" Does this budget put us in a structural deficit?

It appears Vos' claim comes from the General Fund totals of Evers budget for the last of the two years it covers. And from the topline (as shown here in the Budget in Brief), Robbin' is correct.

But let's also a few other reality checks.

1. We are slated to have $7 billion in the bank when this budget begins, along with around $1.8 billion in the Rainy Day Fund, so there's a lot of cushion to play with. A $1 billion imbalance is a whole lot better that the $3.9 billion hole in the budget that the Koched-up CROWE group at the UW-Madison campus admits would appear if the regressive GOP flat tax scheme were to go through.

And at least Evers' unbalanced (but still affordable) budget would help people and stabiize and grow the economy vs that flat tax BS, and I notice Robbin' doesn't want to bring up the inveitbale budget cuts that the GOP's tax scheme would cause.

2. A bigger concern should be that a lot of that $7 billion budget balance goes away under Evers' budget because of that big jump in spending in Fiscal Year 2024. But a lot of that is due to Evers' budget has one-time initiatives that lead to lower spending in future budgets.

This includes using cash instead of borrowing for nearly $2 billion in the state's capital budget, a large pay-down of DOT debt, a $290 million payment to pay for repairs at the Brewers' ballpark for the next 20 years, a $500 million deposit into the Rainy Day Fund, and start-ups of two game-changing programs for the state.

Numbers in millions

So Vos and the GOP Legislature can choose to take any or all of these one-timers out of the budget (and I'm fine if they do that with the Brewers stadium in particular). But they're also going to have to deal with the extra debt costs and unmet needs and lesser outcomes that will continue if those items aren't approved of.

3. Another way to limit ongoing expenses is to have the state take on Medicaid expansion, which would save approximately $1.6 billion in state tax dollars over the next 2 years. But Vos is insistent that he won't do that because of....reasons.

Even the heavily GOP-gerrymandered North Carolina Legislature seems like they've woken up to fiscal reality on Medicaid expansion, but not our gerrymandered dimwits in Wisconsin.

Also not mentioned is that if local governments and schools get additional resources, it not only prevents budget cuts, but it lessens the need for those governments to have to go referendum and raise Wisconsinites' property taxes. It also could lessen the need for local communities to impose and/or raise local wheel taxes, so fewer referenda, possibly lower property taxes, and lower vehicle registration fees would be something a lot of Wisconsinites would be happy with.

So sure, if Robbin' Vos wants to insist on having a balanced structural balance that keeps billions in investments and stabilization away from Wisconsinites, he is free to do so. But let's not pretend that the Republicans are in any way the fiscally responsible ones here, either now, and especially in laying the path for the future.

Wednesday, March 1, 2023

What if January sales and inflation really weren't that hot? Does the Fed recognize it?

A big reason behind the belief that the Federal Reserve will continue its tightening cycle was a huge increase in retail sales for January.
Advance retail sales for the month increased 3%, compared with expectations for a rise of 1.9%, the Commerce Department reported Wednesday. Excluding autos, sales rose 2.3%, according to the report, which is not adjusted for inflation. The ex-autos estimate was for a gain of 0.9%.

Food services and drinking places surged 7.2% to lead all major categories. Motor vehicle and parts dealers increased 5.9%,while furniture and home furnishing stores saw a rise of 4.4%....

“The monthly reports on industrial production, retail sales, and jobs were generally better than expected and point to a pickup in economic activity in early 2023 after a soft patch in late 2022. The Fed will read recent activity reports as supporting plans for additional interest rate increases in the first half of this year,” said Bill Adams, chief economist for Comerica Bank.

Inflation as gauged by the consumer price index accelerated by 0.5% in the first month of the year, the Labor Department announced Tuesday. The sales report indicates that even with elevated inflation pressures, consumers continued to spend.
But much like how I think the January increase in inflation was a one-time bump that has since receded (US gas prices are down 4% compared to a month ago), I think the big increase in retail sales number also is misleading. And the reason why is the old "seasonal adjustment".

In the 2 months before January, retail sales declined on a seasonally-adjusted basis, despite Americans spending more actual dollars over the Holiday shopping season. Conversely, the big boost in January really reflected a lower-than-normal post-Holiday decline.

If you take the last 3 months together, overall retail sales have grown by less than 1% total, and core sales up a little under 1.4%. That's decent, but nowhere near a situation where the economy is overheating and needs to be forcibly slowed down.

But Wall Streeters definitely think we are due for more rate hikes based on this "strong" retail data, and the red-hot jobs market. That would zoom the Fed Funds rate well past 5%, and that recalibration led to a 4% decline in the DOW Jones Industrial Average for February, giving back all of the gains from January.

I just wonder how the reaction will be when February comes back to the norm for both inflation, and likely retail sales. And will the Fed recognize that the inflation and shortages of 2022 aren't coming back, and stop tightening before the economy truly does get hurt from a misreading of the current economic situation?