Short Items of Interest—U.S. Economy
Rise in Claims for Unemployment
The number of people making first-time claims for unemployment rose this week, but there is no reason to panic as the number is still low. There were 285,000 new applicants, a bit higher than expected, but many analysts were not shocked as this is also the time of year that spring break plays a role. People get hired for this period and then are let go—not unlike the process that takes place every year during the holiday season. Bad weather also had an impact on the construction sector.
Labor Policies Start to Emerge
The initial selection to be Labor Secretary was shot down when it was learned that fast food tycoon Andrew Puzder was revealed to have some messy personal issues. He was replaced by a far more low-key nominee in former judge Alexander Acosta. He has not been confirmed as yet, but his path seems pretty open. He has suggested that some of his top priorities will be consistent with what many in the business community have been calling for. He wants to spend a lot more money and effort on job training and transitions. The notion that all jobs can be preserved is unrealistic. He advocates helping people adapt.
Suburbs Are Not Dead Yet
It has been trendy to assert that the suburb is dying. The analysts are looking at the Millennial and asserting that they will be forever attracted to the urban core and the multi-family unit, but lately that conclusion has been challenged. It seems that once the Millennial starts a family and lands the permanent job, they suddenly want that house in the burbs with a yard and space. The suburbs had been shrinking for almost 10 years, but now their growth is outpacing the urban areas again.
Short Items of Interest—Global Economy
Global Worries over Political Deadlock in U.S.
The markets around the world are still reacting negatively to the events of the week. The debate over the health care plan in the U.S. has not been going as many had expected as there are deep divisions within the GOP. The vote today could be crucial as far as expectations are concerned as this is the first real test of the Trump presidency. If the GOP splits and the bill is not passed, there will be doubt over any and all of the other reforms. Thus far, all the enthusiasm about economic growth has been built on expectations.
Crackdown in Uttar Pradesh
The Hindu cleric that has been made the head of India’s largest state has launched a “moral crackdown.” Many have interpreted this as a veiled attack on Islam. The deep fear is that he will spark the kind of internecine conflict that has deeply divided the country over the years. This will be a big test for Modi as he will be expected to weigh in if things get carried away.
Where is the Urgency?
The number of immigrants gaining entry into the U.S. from Mexico is at the lowest level in decades and very little of this has to do with additional security measures. The most important factor is the state of the U.S. economy—there is nothing like a recession to reduce demand. The proposed spending of $4.5 billion seems unnecessary at this stage as the border is not the issue it was once. This is a situation that could change quickly, however, as the U.S. economy perks up and there are fewer opportunities in Mexico. The majority of those who have been entering the U.S. illegally have been from the Central American states and not from Mexico. They have been motivated more by political violence and a desire to escape the drug war than by the desire to find jobs in the U.S.
Home Sales Numbers Fall
The latest data from the housing sector shows a sharp decline in the number of existing home sales. There was a decrease of 3.7% after a nice rise of 3.3% in January. This is not yet a major crisis as even with this decline, the rate of sales was 5.4% above what it was at this time last year. A decline in the sales of homes is never a welcome situation given the role the housing sector plays in the economy as a whole. However, the reasons for the dip are very important and tell us much more about the overall state of the market. The fact is that many things can change the housing sector. Some of the reasons for this change are better than others.
Analysis: If there is a decline in home sales due to lack of demand or factors that are inhibiting potential home buyer that is a very bad thing. In the past, there have been too few potential home buyers feeling secure about their job prospects to get into the market, or they were intimidated by the need to come up with significant down payments or they were unable to handle the mortgage payments they would face. These are reasons for a slow market that can be very long lasting—they can keep the market depressed for many years. There are additional factors that are inhibiting home sales but they stem from other and sometimes less threatening reasons.
Right now, the major factor is a shortage of available homes. There is demand for both new and existing homes, but not enough inventory to meet that demand. This is a situation that has been developing for years. There are several reasons for the lack of inventory. One has been reluctance on the part of many lenders to provide loans for speculative building. That means builders have to have firm commitments in hand from buyers before anything can even get started. It has meant that some of the potential buyers of new homes have turned to existing stock because they can’t wait that long for a new home to be built. There have also been severe limits as far as construction workers—an area that has been hit as hard as manufacturing and transportation when it comes to the skilled labor market. It was reported last year that it was taking over a year to schedule a dry wall team in Dallas and even longer in Houston. In the boom years of the housing sector in the last decade, it was estimated that a third of the construction workers employed in the U.S. were from Mexico and other parts of Latin and Central America. That workforce has not returned to the U.S. and the domestic workers have not picked up the slack.
The second major factor is predictable. The high prices that have been driven by the inventory shortage have made the core problem even worse. The average price of a new home has been ratcheting up rapidly in the last year. Now that hike is being combined with higher mortgage rates. Thus far these mortgage rates have not been especially high, but with the Fed hiking rates by at least two more times this year, it is obvious that mortgage rates will not be heading down anytime soon. The biggest inhibitor connected to mortgage rates and higher prices is that down payments have also risen sharply. Many of the younger home buyers are unable to get that sum together and have elected to stay in apartments and lofts for a while longer.
Finally, the existing home owner is not as eager to sell as they might have been a year or so ago. They assume that prices will keep going up—they believe they can wait for a better opportunity. There remains a solid stock of existing home inventory when and if the Baby Boomer elects to sell and move to some other situation such as assisted living and senior living, but there have also been strides made that allow people to stay in their homes. That has been a much more important factor than would have been expected and will remain an important consideration going forward.
Who Should Be Allowed to Enter the U.S.?
Generally speaking, there is some basic consensus on the issue of illegal immigration. Nobody asserts the U.S. should encourage people to enter the U.S. illegally. The consensus immediately dissolves after this as there are widely different views as to what to do with those who arrive without permission and wide divergence on whether more of the illegal population should be allowed to enter legally. There is a position gaining more support in Congress asserting that the current rationale for legal immigration should be altered to better serve the U.S. national interest.
Analysis: The main rationale for legal immigration into the U.S. is family based—an attempt to allow unification of the family unit. A member of the family gains permission to reside permanently in the U.S. and then they are then allowed to bring family members to join them—usually only immediate family, but there have been exceptions. The other rationale for entry is to bring the skills and talents the U.S. needs. This has generally been accomplished with the H1B visa and other specialized permissions.
The proposals that have been floated assert that family unification should be reduced dramatically to include just the nuclear family and not parents, grandparents, brothers, sisters, nieces and nephews. Instead, preference should be given to those who have the skills required by the U.S. This is not a universally supported plan, but has been gaining support as the U.S. tries to develop a new immigration policy. There are many countries that restrict immigration to those who have the most to contribute to the society they are choosing to enter, but they have been under criticism for their anti-family views as well.
There is even an issue of assimilation. Those who come to a new country to work are generally eager to adopt the cultural norms, learn the dominant language and become new citizens. The relatives that follow are often not as enthusiastic and resist the assimilation process. This creates additional costs and even some additional security threats from disaffected family members.
Another Attack—Another Series of Comments
The assault in London killed three people and injured 40 (at least). As near as can be determined at this point, the man responsible was not part of some organized group and was known to some degree by the British intelligence services. He was seen as a radicalized lone wolf, born in Britain. As he was shot and killed, it will be impossible to learn more about his motivations other than through what he has left behind. That investigation is in full swing. His target appeared to be Westminster and the majority of his victims were tourists. The incident has appropriately shocked the country, but unfortunately these assaults are no longer unusual or even unexpected.
Analysis: The bigger issue—at least in the short term—is how people have been reacting to the attack. British parliamentarians have been making a point to go to Westminster and carry on as before. In truth, it doesn’t appear that this is any sort of organized attack or one that will beget more. On the other hand, the police have arrested eight people with connections to the attack—presumably people who had connections to the attacker over past years.
There is no way that every action of every person can be monitored, much less understood. Each and every day, there are tragedies taking place as people kill and injure others for a host of reasons ranging from the political to the personal. The British are once again faced with moving on from a tragic loss of life in a way that protects what their country stands for. That demand will be made on the rest of the world over and over again.
EU Expansion Reconsidered
When the Iron Curtain fell, the worldwide response was nearly ecstatic. The long division of Europe into East and West was going to come to an end. In 2004, the EU expanded dramatically by adding eight countries from the former Warsaw Pact or from the USSR itself—Poland, Hungary, Czech Republic, Slovakia, Slovenia, Latvia, Lithuania and Estonia. Two island states that had not been part of that bloc were also added—Cypress and Malta. In 2007, Bulgaria and Romania joined and Croatia in 2013. This massive expansion has been very hard to absorb and in many ways led to the British desire to pull out. The migration of people from these former eastern states triggered the anti-immigrant attitudes in the U.K.
Analysis: The further growth of the EU is very much in doubt now. There is a general sense that immigration worries will stall expansion. There are financial concerns as well given the fact the new applicants will be taking far more aid and assistance than they will be providing. Turkey is the largest applicant and by far the most controversial. It is not even clear that Erdogan really wants to join at all. The other states that came out of Yugoslavia are applicants as well—Montenegro, Serbia, Macedonia and Bosnia. There has even been talk of Ukraine trying to join, but that would be something that Europe would be very reluctant to take on as long as the Russians occupy half the country. The EU experiment has never been in greater jeopardy with at least six states discussing withdrawal. It is unlikely that France, the Netherlands, Greece, Italy, Spain and Portugal would make that choice, but the fact that some in these states want to should be taken seriously. The EU has had trouble assimilating the states that joined in the last decade and all efforts have been directed towards getting the mission reestablished.
I do a lot of speaking. I am generally on the road every week and in two or three cities. The groups are varied—from credit groups to manufacturers to accountants and service industries of all kinds. In general, the groups I talk to fall into two categories—those with lots of old friends that I see almost every year and those with people who will soon become the friends I see every year. In the world of the conference speaker, I am very lucky as they can have me back year after year. My topics change every week or month and they will always get new material. This has allowed me the luxury of talking to the same groups and people for many years and even decades.
Beyond the fun of renewing all these acquaintances, there is the fact that I learn a great deal about what is going on in the “real” world. Not that I don’t trust my data and all my charts and graphs, but it is always reassuring to hear that the observations I am making reflect reality. It is even more interesting when they deviate a little. My conversations with these business people and analysts are revealing and allow me to get an appreciation of the regional differences and complexities.
It can also be reassuring to see the way that good people behave in the business world. These owners and executives are driven to make things work for everyone—employees, investors, the community and even on occasion for themselves. They routinely restore my faith in the world and in people.