Homeownership, labor shortages influence economic growth
With the Great Recession pulling the rug out from under homeownership, optimists expected a population percentage of single-family home ownership to return to the near 70% share of U.S. households in the foreseeable future. This had been reached early in the previous decade.
Such expectation seems now to have gone up in smoke, even as near-all-time-low mortgage rates have remained in place for some time. However, the popular homeownership mentality, so dominant in the multi-decade period prior to the Great Recession, has not reasserted itself. The pre-crisis percentage hit a rock-bottom low of 63.5% in mid-2014.
The “homeownership for all” mania was ignited by President William J. Clinton in 1995 as part of his “national home ownership” strategy, enthusiastically retained by succeeding two-term President George W. Bush.
With pseudo-government-supported “banks” Fanny Mae and Freddy Mac as a financial federal support stalwart, mortgage-backed single homeownership spread to many hundreds of thousands whose credit risk made their mortgages unsustainable, but they felt assured that the federal government sponsorship would bail them out.
This misconception was underpinned by U.S. financial institutions that loaded up on multi-traded mortgage-backed derivatives. This led to a major institutional bankruptcy disaster as the Lehman Bros. brokerage giant’s demise spread like wildfire throughout America’s financial system, and much of the Western World at large, in mid-September 2008.
The spate of collapses encompassing some of the grand old names in banking and brokerage generated an increasingly wider economic collapse. Ironically, the termination of “Glass-Steagall” in the final stages of the Clinton two-term presidency added fuel to this economic fallout as financial institutions joined the “party” by investing their additional liquidity in mortgage-backed derivatives with consumer debt.
With rentals as the only viable residential alternative, the current trend, especially in urban, suburban, and even rural areas, has followed suit, thereby diminishing mortgage-backed homeownership and sustaining the steady increase of time shares and short-term obligations reflected by this lifestyle.
Although residential housing starts reached the 1 million mark in 2016, this is far below the 1.6 million attained in 2007. Also, even a substantial portion of single-family housing development seems to be buttressed by rental commitment.
Furthermore, America’s population of 330 million (third largest in the world) has grown substantially in the past decade, guaranteeing additional homebuilding volume in the future.
How can the labor shortage and unemployment and coexist?
While the most recent labor force participation percentage is hanging in at the low 60s, indicating over 90 million work-ready participants not “on the job” in this country today, a near record number of job openings are unfulfilled. The explanation lies in the paradox of displacement.
This can best be explained by the rapidly changing nature of America’s lack of technical expertise training. This was once covered by hundreds of technical high schools and similar training education centers, which have been displaced by inflated liberal arts specialization at both the teenage and college levels. This radical displacement has been worsened by the record closing of factories and the shrinking of start-up independent businesses that benefitted from a strong demand for the quality and dependability of “Made in America.”
Unless this disparity improves, the labor shortage in key economic sectors will get worse. This is especially true of those businesses already struggling to fill vacant positions. This will prove especially vexing to “small” businesses. It’s estimated that a third of these have recently had to increase pay to maintain needed staff.
It’s further estimated that almost half of these free-standing businesses can’t find qualified applicants.
The breadth of such badly needed employees includes high-tech workers, engineers, mechanics, security personnel, construction workers, painters, latherers, and more. This crisis is especially severe in the major cities in the sprawling area west of the Mississippi, in New England, and in the nation’s upper Midwest.
The nation’s building trades are particularly tight as the need for carpenters, electricians, plumbers, roofers, etc. are in increasingly short supply.
Meanwhile, stricter enforcement of immigration law, hailed by enthusiastic supporters of the Trump Administration, will tighten a large proportion of agricultural and food service workers, hospitality employees, as well as manufacturing positions.
To catch up with a potentially strong rebound in domestic economic growth, higher wages and other forms of compensation will have to be offered to fill the expanding gaps that “Made in America” will exacerbate.
Could protectionism elicit severe economic retaliation?
While President Trump’s emphasis on bringing jobs and factory capacity back to the U.S. is being met happily by workers and labor unions alike, it could also gravely impact America’s thriving export sector. This would primarily depress America’s agricultural business, depending on outbound shipments. Such varied agricultural products as corn, soybeans, wheat, cattle, and others have been on a tear, reaching $130 billion in 2016; it is expected to reach nearly $140 billion in the current fiscal year.
NAFTA partners Canada and Mexico alone will account for $40 billion worth of farm products, growing at a pace where these U.S. neighbors will comprise one-third of the agricultural sector’s export trade at current growth rates.
On a global basis, half of all U.S. corn, wheat, soybeans, and rice — and three-quarters of its cotton — are exported. This makes the U.S. the world agricultural top exporter, one that has remained highly competitive. U.S. farmers, although comprising a minute 1% of America’s population, have greatly benefitted from the world’s accelerating population growth as well as the disproportionate favors from Congress, which has fostered such artificial technologies as converting ethanol from corn.
While most American hard goods manufacturers look forward with glee at the potential benefits that Trump’s reversal of foreign imports of all types foretell, leading chief farm conglomerate CEOs, such as Cargill’s David MacLennan, view Trump’s revolutionary economic goals with a jaundiced eye.
These farm executives are viewing rejecting such multi-national trade policies as the Trans-Pacific Partnership as an economic disaster. This alone had promised an additional $4 billion to $5 billion of sales to Pacific Rim nations by U.S. meat, dairy and grain farmers. Even worse, according to leading farm industry spokesmen, is the threat by President Trump to raise tariffs on our major neighbors and primary U.S. farm product importers, Mexico and Canada.
Conversely, the anticipation of the U.S. walling off its agricultural exports by worldwide retaliation imposed by these nations’ projected export tariff increases has America’s farm industry in a panic.
Bob Young, chief economist for the American Farm Bureau Federation, the largest U.S. farmers’ group, warns that Brazil and Argentina in global corn and soybean markets, Ukraine and Russia in grain and oil seeds, and Australia and New Zealand in meat and dairy are ready to pounce, competitively, on the opening that anti-American import retaliation will likely bring.
Like all major policies, such import/export confrontations prove that every coin has two sides.
Independent business associations give Trump ‘Thumbs Up’
While there seems to be some questions as to President Trump’s impact on small business, the National Federation of Independent Business survey gives POTUS a strong positive rating.
The U.S. Bureau of Labor Statistics has validated that these so-called small businesses that employ less than 500 employees and make up 53% of the current U.S. labor force. Historically, U.S. job growth or decline has been indicated by the expansion, or contraction, of these businesses. By this measure, the Obama Administration has had a negative impact on the formation, expansion, or continuation of these close to one million independent business units.
Last year indicated the first substantial contraction of these American-based independent businesses since 1973, according to the survey. The reasons given include discriminatory taxes, a regulatory binge, and the mountain of additional paperwork impinging these independent businesses’ abilities to keep costs in line. These factors have restricted profitability and resulted in sales decline.
A positive reversal of this pessimistic trend has shown up in the NFIB’s most recent survey, which shows small business optimism has soared to its highest level since 2004, generated by the election of President Donald J. Trump. This newly engendered optimism has also been confirmed by the University of Michigan’s consumer confidence survey, which has recently hit the highest levels since 2004, when gross domestic product was growing at an annual level of nearly 4%.
Of particular emphasis in the NFIB report has been a most recent gain in members’ capital spending plans. Almost 30% said they would make new capital outlays to expand, matching its highest level since 2007.
However, a watch-and-wait attitude was also revealed in these latest surveys, especially after a most disappointing last year, when “revenues generated” were in decline. What seems to have particularly impressed small-business owners and active company general managers is President Trump’s “Buy American” mandate. This presidential promise rings loudest as a potentially fulfilled promise.
As the incoming “Trump economic initiatives” become reality, the overwhelming majority of independent businesses polled stand ready to juice up their businesses dramatically, since loan availability has not been a problem for this group, according to the NFIB’s surveys.
This belief cuts across all lines of endeavor, whether manufacturers, distributors, fabricators, contractors, or consultants, etc. The success of this apparent evaluation should indicate its reality by the end of this year.
Is Smoot-Hawley about to raise its ugly head?
With January opening 2017 with one of the largest trade deficits in five years, the darkening shadow of “Smoot/Hawley” gives foresight to an unbalanced export/import factor in America’s globally dominant economic super structure.
To those not familiar with the aforementioned congressional initiative that closed the door to significant imports while foreign markets retaliated by shorting U.S. exports, “Smoot-Hawley” can rightfully be blamed for accelerating the Great Depression of the 1930s, which the mandate was supposed to reverse.
While the Trump Administration owes its election victory to some extent to promised support against the increasing unemployment of America’s factory workers, and even major industrial unions, the “Buy America” call may be going too far in reversing the opposite trend. This, for 16 years, had concentrated on low-cost imports to engender support from America’s top-heavy (68%) consumption sector.
Unfortunately, the victims of current over-enthusiasm with mandating “Made in America” as an act of patriotism may well be the farmers, industrial workers, and the greatly increased export sector, as a whole, which has elevated the U.S. to one of the world leaders in the “outbound” surge.
A balanced approach that could renew America’s internal production/employment growth can be found in the Reagan administration’s era (1981-1989), which almost miraculously broke the back of runaway inflation, growing unemployment, and slumping exports.
This often underrated shining decade in America’s recent economic history owed its success to a rational, rather than extremist, approach. That period lofted the American economy to new heights domestically while also restoring the popularity of U.S. goods worldwide — including aircrafts and automobiles, technology, retail goods, and farm products — to levels not seen since the post-war Marshall Plan rebuilt Europe.
It also opened the door to the North American Free Trade Authority (NAFTA) and expansion of economic relationships with Asia, South and Central America, and the Middle East. This was done through thoughtful negotiations that proved beneficial to the partners in these ventures, not by a one-sided criticism of previous import/export disparities. It should be the desire of the Trump Administration to borrow several pages from such Reagan Administration’s successes.
Will greater US, UK economic unity prove mutually beneficial?
While the British U.K. completes its disentanglement from the European Community (EUCOM), the beginnings of a stronger Anglo/American economic relationship are becoming increasingly apparent.
When the U.K. decided to tie its economic future to the European consortium, its focus became increasingly involved with the European mainland as one of its 28 members. This decision originally opened markets for the broad spectrum of British industry, making it more effective through tariff reduction and the availability of labor needed to man British technology and general industrial construction expansion. The early development of the European Community, as its formation was still in the latter stages of post-World War II rebuilding, gave an economic boost to overall British production capability and easy proximity.
In the meantime, the British population substantially increased from roughly 50 million to 75 million, at latest count, as India, Pakistan, and other former British ex-colonies unleashed many of their subjects to the English homeland. Over the past 20 years, this has provided London with a much greater labor pool and allowed its gross domestic product of goods and services to vault into the substantial multi-billion-dollar range.
But with the current U.K. “divorce” from the EUCOM, a brisk cross-Atlantic economic expansion is in the making. In addition, Britain’s wise withholding from Eurozone of its world-leading pound currency (along with the U.S. dollar) has opened up and facilitated a potential acceleration with its English-speaking, and shared-value partners from across the pond.
Britain’s frustration with the Eurocom’s “Brussels edicts” had begun to wear on its intra-continental relationships. Also, the greater size of the British home market provides an attractive partnership with its American cousins. This anticipated growth relationship will also benefit America’s economy with the strong British influence; that still asserts itself in the Middle East due to long-term relationships dating back to the 19th century.
With Germany’s, and potentially France’s, security positions being undermined by some of the large number of immigrants seeking sanctuary, Eurocom’s previously enticing marketing partnership doesn’t hold the promise it once did.
The U.K., on the other hand, stands on the verge of a $50 billion plus economic increase that stands to be shared with its readily available American cousins.
Can ambitious US expenditures cope with treasury debt?
With the passing of the first 100 days of President Trump’s promised remake of America’s multi-year lagging economy, only the bare outline of its future development has begun to take shape.
Despite the lack of major breakthroughs as yet, America’s business and industry segment, as well as the overwhelming majority of components comprising it, has shown its enthusiastic support of what it expects to happen. The major factors that have ignited this optimism are as follows:
1) The broad spectrum of the stock market’s values has achieved double-digit increases since President Trump’s Nov. 8, 2016, election. This has sustained itself through the first quarter of 2017.
2) The spending lack of hundreds of billions of dollars’ worth of indigenous monetary wealth retained by U.S. corporations, large and small, has begun to manifest itself in preliminary factory expansion, utilizing monetary reserves.
3) The U.S. financial community has greatly accelerated its intent to initiate the outright purchase of, or the investment in, the countless U.S. independent businesses that had previously engendered little interest during the last 16 years. This has been primarily due to regulatory strictures and an open-ended U.S. Environmental Protection Agency agenda. Also pressuring independent businesses was the previous Administration’s emphasis on imports to achieve the ultimate cheapest costs, with which domestic companies could not compete.
4) The current federal budget, which has increased military spending, along with the anticipation of even greater future expansion has emphasized America’s return to leadership dominance of the “free world.” This trend, promised by President Trump, has reignited a “Made in America” spirit, last witnessed during the 1980s Reagan Administration.
With the several presidential executive orders that have been issued, foretelling an emphasis on rebuilding the U.S. infrastructure, a remake of the “Affordable Healthcare” legislation, and vastly increased energy sector job opportunities, growth expectations have reached ever-higher levels. Even a “regulatory remake” is eagerly anticipated.
But while President Trump is echoing Ronald Reagan’s statement, “The U.S. government is not the solution, but the problem,” when it impacts America’s industry, the halting and future reduction of the U.S. Treasury debt has as yet not been properly addressed. So far, cutbacks on non-military spending, reduction in financial support to a multitude of foreign nations, and potential re-evaluation of payments to the United Nations, World Bank, and even NATO have already been sent up as trial balloons.
The most innovative tax structure in 30 years and the recall of close to $2 trillion of U.S. conglomerates’ overseas holdings would help, but depend on final Congressional approval for implementation and approval.
But despite the well-received Administration’s intentions, the mounting U.S. Treasury debt, especially as interest rates increase, may well turn out to be the undesirable stumbling block casting a dark budget shadow as Trump’s first year ends.