Real Median Household Income Highest Since February 2002 (But M2 Money Velocity Continues To Tank)

According to Sentier Research, in April, real median household income reached $59,361, according to the latest report from Sentier Research. That’s up 2% since January, and is as high as it’s been since February 2002 (or 15 years). Expressed as an index, median household income was 100.9 in April, which is the first time this index has topped 100 since December 2008.

Now, if the central planners in DC can just get money velocity (GDP/Money Stock) to stop diving!

Boola, boola, boola! 

Commercial/Multifamily Borrowing Up 9 Percent from Last Year (Retail Originations Down 23%)

The retail sector can’t seem to buy a break these days. With 8,600 brick-and-mortar stores may close their doors in 2017, lending was expected to decline.

According to the Mortgage Bankers Association, commercial/multifamily originations rose 9% from Q1 2016.

That is the good news.

The bad news? 1) Retail originations fell 23% from Q1 2016.  2) CMBS/Conduit originations were down 17%. 3) Hotel originations were down 40%.

The good news? 1) Healthcare originations were up 22%. 2) Industrial originations were up 40%. 3) Multifamily originations were up 14%.

Notice that Fannie Mae/Freddie Mac multifamily origination programs were up 33% from Q1 2016.  At the same time, Life Insurance Companies saw 0% growth in commercial/multifamily originations.

Thanks to The Federal Reserve, short-term interest rates remain suppresed and have for the last ten years.

Office originations grew at a listless 2% from Q1 2016. On-line retailers like Amazon have helped shrinked the retail footprint. But will shared office space and the internet finally drive a spike through office space when employees can work remotely?

So, will this be the final countdown for office space?

California Admits State’s Contribution To Retirement Giant CalPERS To Double (As Recovery Takes Longer Than Expected)

California’s recovery from The Great Recession has taken longer that Governor Jerry Brown imagined.

Yet the slowness of the recovery hasn’t stopped Governor Brown from spending like the proverbial drunk sailor on big dollar items such as high-speed rail (for which Senator Diane Feinstein’s husband was award a near-billion dollar contract).  But as an economist friend of mine in California said “What do you expect when the Democrats have a super majority in California’s governing bodies?” And now Governor  Brown is asking President Trump for financial assistance in building the high speed train (and pay off Senator Feinstein’s husband).

When you spend like a wild man on government projects and combating poverty, something has to give. And one of the somethings is the California state pension program for teachers and public employees. Even big spender Jerry Brown has “suddenly” realized that CalPERS was only 65% funded  as of June 30, 2016 (CalPERS reported that the state plans’ unfunded liability totals $59.5 billion and is 65 percent funded, meaning that CalPERS only has 65 percent of the funding required to make pension payments to state retirees).

So what does a state do when they realize that they have woefully over-promised retirement benefits to state employees? Double the amount of taxpayer contributions to CalPERS, of course!

Absent additional action to address these growing liabilities, paying off retirement liabilities will require an increasing percentage of the state budget. For example, the state’s contributions to CalPERS are on track to nearly double from $5.8 billion ($3.4 billion General Fund) in 2017‑18 to $9.2 billion ($5.3 billion General Fund) in 2023‑24. In response, the May Revision proposes a $6 billion supplemental payment to CalPERS through a loan from the Surplus Money Investment Fund. 

This was inevitable since CalPERS massively overpaid management and advisors have produced terrible returns versus lofty expectations of returns of 7.5%.

The May Revision includes a one?time $6 billion supplemental payment to the California Public Employees Retirement System (CalPERS) in 2017?18. This action effectively doubles the state’s annual payment and will mitigate the impact of increasing pension contributions due to the state’s large unfunded liabilities and the CalPERS Board’s recent action to lower its assumed investment rate of return from 7.5 percent to 7 percent.

Seriously, with all the stimulus thrown at the economy by The Fed since 2008, CalPERS can’t even generate 7.5?

But yes, lowering the rate to more reassonable 6% requires substantial taxpayer bailout. And you know that Governor Brown will come to Washington DC begging for a Federal bailout.

Note to Governor Brown. If you declaring open borders AND promisng heathcare and other taxpayers benefits to undocumented imigrants, you might have to cool it on state pensions, high-speed rail, etc. Economics is the study of scarcity for which Governor Brown apparently now realizes is a reality.

On a side note, a friend of mine was Governor Schwartzenegger’s budget director. He sent me the California budget for several years along with “a noted economist’s” GDP forecast. Of course, the GDP forecast was ludicrous. Hence, here we sit today.

 

 

Core CPI YoY Falls Below Fed’s 2% Target To 1.9% (While Core PCE Growth Falls To 1.56%)

I doubt if anyone on The Fed’s Open Market Committee (FOMC) cares, but Core CPI YoY has been falling and is now below The Fed’s target inflation rate of 2.0%. Core CPI YoY is now 1.9% for April.

Let’s compare Cpre CPI YoY with Core Personal Comsumption Expenditures YoY. Core PCE growth is also below 2% and shows that same declining pattern of Core CPI growth.

U

The FOMC seems to more heavily weigh U-3 unemployment since a lack of slack is supposed to lead to wage inflation. Note that NAIRU is above U-3 unemployment by over 50 basis points.

Regardless, Chair Janet Yellen should start wearing a Nehru jacket and hat. Or it that a NAIRU jacket and hat?

 

Retail Wasteland: Mall Retailer Macy’s Suffers Earnings Decline … Again

Yes, the retail massacre continues, at least for mall stores.

Macy’s. the venerable retailer. saw comparable store sales at owned plus licensed stores decline -4.6%, below the already depressed estimate of -3.5%.

Here is a chart depicting Macy’s declining fortunes.

The reaction for Macy’s equity?

Now, not all retail store sales are slumping. Home improvement giant Lowe’s is actually gaining ground. Likely because I just bought a dishwasher at Lowe’s.

Internet companies and home improvement are leading US earnings growth while non-HI retailers are sucking wind.

I wonder if the Macy’s Thanksgiving Day parade will be replaced with an Amazon parade where everyone stays at home ordering goods?

I hope The Who does a new version of Teenage Wasteland and renames it Retail Wasteland.

 

 

Hey Bartender! U.S. Job Gains Rebound as Unemployment Falls to 2007 Levels (Hourly Earnings Slow To Levels Seen At End Of Great Recession)

Another good news and bad news jobs report from the Bureau of Labor Statistics.

First, the good news. 211k jobs were added in April. And the U-3 unemployment rate fell to 4,4%, the lowest since May 2007. Since The Fed so heavily leans on the U-3 unemployment rate to guide their rate hike decision, this should be compelling information for the next FOMC meeting.

The U-6 UNDERemployment rate (including marginally attached workers) fell to 8.6% in April, also the lowest since 2007.

The labor force particpation rate fell slightly in April to 62.9%. It peaked in January 2000 at 67.3% in the waning days of the Clinton Administration. It has been all down hill from the point.

Now for the bad news. Yes, hourly wage growth YoY fell back to where it was at the end of The Great Recession. Great recovery when wage growth AFTER a recession is slower than before or DURING the recession.

And yes, there are 94.8 MILLION people not in the labor force (retirees, students, those who have given up working, etc).

Leisure and hospitality is once again the leading sector for jobs added!

Zerohedge has a good chart showing the difference beteween March and April jobs added. Same result in that Leisure and Hospitalilty lead the jobs added.

It looks like Lloyd the bartender from “The Shining” is back in business!

Hey Bartender! 

 

California Public Pension Shortfall One of Nation’s Largest (Kentucky, New Jersey, Illinois, Colorado The Worst)

The Pew Charitable Trusts recently came out with their study, “The State Pension Funding Gap: 2015”. PSRS_The_State_Pension_Funding_Gap_2015 And an ugly picture it paints of state pension funds.

Here is a nice editorial from The Sacramento Bee:

Throughout California, local government and school district officials are writing new budgets and confronting rapidly rising costs of pensions.

Many have seen their costs double in the last few years, largely consuming revenue increases that the state’s expanding economy have produced. For instance, a projected $1 billion increase in school districts’ teacher pension costs in 2017-18 will more than equal projected revenue gains.

However, as the old rock song says, “You ain’t seen nothing yet.”

Lackluster earnings by pension trust funds, revised actuarial projections and impacts of benefit increases are compelling the systems to sharply increase mandatory “contributions” from public employers.

Nevertheless, pension systems have seen their “unfunded liabilities” continue to increase – giving California one of the nation’s widest gaps between earning assets and pension obligations.

California’s unfortunate status is confirmed in a new report from Pew Charitable Trusts, which found that in 2015 the state’s two big pension funds had the nation’s sixth-worst record of reducing unfunded liabilities, gathering just 79 percent of the $18.9 billion they needed to keep their pension debts from rising.

California’s status may have worsened since then. In 2015, Pew reported, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System had 74 percent of what they needed to meet pension obligations, but that ratio has since dropped to about 64 percent due to reductions in their projected investment earnings.

The worst according to net amortization? The net amortization calculation recognizes strong contribution policies. It reflects plans’ assumptions and actions, as well as the market forces at hand. Six states—Colorado, Illinois, Kentucky, New Jersey, Pennsylvania and California—fared worst on this benchmark in 2015. But Kentucky is the worst giving new meaning to the term “Kentucky windage.”

The worst funded ratio for 2015? New Jersey, Kentucky and Illinois — all at 40% or lower.

Just as troubling is the rising state pension liabiities versus pension assets.

The abysmal performance of pension fund managers is partly to blame, which is hard to imagine when stock and real estate prices have been soaring (particularly with the low cost of funding courtesy of The Federal Reserve).

But the real problem is Defined Benefits programs (Ohio switched to Defined Contributions back in the 1980s).  But as the Baby Boomers retire in force, the pension coasts will continue to skyrocket.

Why didn’t state governments plan for this pension explosion? And what happens if asset bubbles burst?

“Yes citizens, you are going to have to bail out our state workers and teachers. But after we try to get the Federal government to pay for the pension shortfall.”