Tuesday, July 7, 2015

Five graphs for 2015: mid-year update

 - by New Deal democrat

At the end of last year, I highlighted 5 graphs to watch in 2015.  Now that we have all of the reports through midyear, let's take another look.

#5.  Mortgage refinancing

After a mini-surge at the end of January (light brown in the graph below), refinancing applications fell back to their post-recession lows due to a rise in mortgage rates.  Mortgage News Daily has the graph:

Over the last 35 years, refinancing debt at lower rates has been an important middle/working class strategy.  There is little room left for that strategy.  As shown in the below graph I first published over 3 years ago, if mortgage refinancing stays turned off too long, and wages don't grow in real terms, then consumer spending falters and so does the economy:

That three year anniversary is now 5 months away.  

#4 Gas prices

Here is a graph of average hourly wages divided by gas prices (blue) since the bottom in gas prices in  1999: 

How long must a worker labor in order to buy a gallon of gas?  After skyrocketing in the lead-up to the Great Recession, gas prices collapsed, helping the consumer start to spend again on other things at the bottom of that recession.  The steep drop in gas prices late last year took us almost all the way back to that bottom.  Just as in 1986 and 2006, at first consumers saved the money, but once they loosen their pursestrings - which looks like it happened in May - this will be a strong tailwind to the economy.

#3 Part time employment for economic reasons

 Next is a graph of part time workers for economic reasons expressed as a percentage of the labor force.  In the first half, this continued to improve:

In the longer view, however, this is still 2% (about 3 million) above the boom level of 1999 and about 1.5% (2.25 million) above the level of 2007:

The definition of this measure changed in 1994, so the prior data is not directly comparable, but since the 1994 change subtracted about 1% from the measure, by adding 1% back in, we can get a good feel for how we compare with the recovery from the deep 1981-82 recession:

We are still at a level not seen since the mid-1980s.

#2 Not in Labor force but want a job now:

This moved generally sideways during the first quarter, but improved nicely in the last two months:

It is now only 300,000 above its post-recession low of November 2013 (just prior to Congress's cutoff of extended unemployment benefits) and about 1.6 million above its 1999 and 2007 lows.

#1 Nominal wage growth

After 3 poor readings last August, December, and February, YoY growth in nominal wages fell back close to their post-recession lows before rebounding this spring.  Even so, YoY growth is still under 2%:

Compare our present expansion with the previous two.  In the 1990s and 2000s, nominal wage growth was started to accelerate, and was approaching 3% YoY at roughly the same time as the broad U6 unemployment rate fell to the 9.5%-10% range.  Currently U6 unemployment is 10.5%.

There have been a few interesting notes about the lack of wage growth.  The staff of the Federal Reserve has done a study indicating that the number of long-term unemployed plays an important role (since presumably these people are more desperate).  In a similar vein, the Atlanta Fed has reported that the relatively high number of underemployed, and in particular employees who work part time for economic reasons, and also the high number of those out of the labor force, but who would return to work if conditions were better (see items number 2 and 3 above), are an important factor in holding down wage growth.  It has also been suggested that the disproportionate (compared to normal times) percentage of relatively highly paid employees (Boomers) retiring from the labor force, and being replaced by younger workers, is holding down wages.  

In summary, six months into the year there has been no real improvement in either refinancing or wages. Should wage growth not improve, and mortgage refinancing remain dormant, we are likely to run into trouble - at least deceleratiing growth - probably by early next year.

On the other hand, involuntary part time employment has improved by about 300,000, and discouraged workers who have completely stopped looking have decreased by about 400,000. Shoould those trends continue, I expect wage growth to start to accelerate in about 4 to 8 months.  Still,  if current trends continue, we won't achieve real, full employment like 1999 or even  2007 for another 1.5 to 3 years! 

Finally, seasonally low gas prices continue to be a boon to consumers.