Home Sales & Turkeys
The Wall Street Journal published a report on the state of the U.S. home sales market. Wow…we’ve reached a peak not seen since February 2007. Existing housing supply, which is now at 4.3 months, is much shorter than the 6-month supply that’s often considered the sweet spot. When the supply duration drops below 6 months, housing prices usually increase since there are more buyers than sellers. For those readers that have experienced tight housing supplies, it’s a bit unusual and surreal. Consider listing your house for $350k and by day-end you’ve recevied 3-5 offers, all well above your asking price. Markets in California and New York City occasionally operate like this, but it’s unusual in the country’s heartland.
US Existing-Home Sales Highest Since February 2007
As can be seen in the article, the housing market continues to be robust, this, combined with low unemployment, reflects a strong economy. It also often reflects an economy that may be reaching a point for a slowdown. Housing is usually a lagging indicator. In other words, by the time that home buyers have enough money to bid up prices, inflation increases and the Federal Reserve will rain on the economic parade by increasing interest rates. This in turn increases the cost of buying a home so fewer buyers can afford a new home and prices decline, once again. Understanding economics can often seem elusive.
While it impossible to predict the economy, for many Americans life has never been better. The devil will be in the details of the Trump administration. He has espoused tariffs and restricted trade while lowering taxes and increasing spending on the military and infrastructure. These goals provide a wonderful basis for increasing budget deficits and, in the short-term, less growth for companies that export their products and services.
Let’s forget politics and economics for a week. Eat too much and enjoy the company of those around you. Happy Thanksgiving.
The Berkeley, Inc. Team
Given the pending presidential election in 2 months, the news released yesterday about improving wages and general economic growth in the U. S. (still slow but steady) is providing Democrats something to tout, while Republican’s initial response is somewhat muted. The Washington Post which frequently considers the political implications of such news posted the attached article on the 2015 census data. The Washington Post included quotes from Jason Furman, chairman of Obama's Council of Economic Advisers, the House Ways, and Means Committee Chairman, Kevin Brady (R-Tex.)
The Wall Street Journal reported the data in a similar format. The primary difference between the two articles was The Wall Street Journal provided just the facts. Readers can conclude any positives in the economy or social welfare of US citizens will thus be heavily used by both parties in general speeches and during the presidential debates.
A significant caveat to the substantial gains is the wage increases applied primarily to those living in urban areas, while rural wages have remained flat. This further illustrates the basis for the political division in the country. Most rural states lean and vote Republican, while the more urbanized states side with the Democrats.
Middle class incomes had their fastest growth on record last year by Jim Tankersley
Election & Economics
The Economist, based in England, provides a European and British view of economic trends and data. We want to use this article to provide you with a better understanding of two economic concept and their assumptions as they pertain to the current presidential election. You will see many references to this type of analysis in the media when comparing the varying economic policies of the two political parties and their presidential nominees. Read the article and then read our explanation below.
How Clinton and Trump plan to boost wages
There are two primary economic topics in this short article: international trade and wages.
Let's begin with international trade. The Economist is assuming that, if employee productivity increases significantly then it will eventually lead to higher wages. The author is also assuming that freer trade will eventually lead to better prices for consumers. The free trade argument is based on "comparative advantage." This concept is a primary pillar of modern economic thought and philosophy. If a developed nation moves its lower skilled products and services to less economically developed nations, then it allows the developed nation to produce higher valued goods and services. For example, if the U.S. moves the production of pencils to Mexico then the U.S. can sell more information technology to Mexico. The cost of pencils in the U.S. will decline while the wages of U.S. workers will increase so they can buy more pencils. In other words, it's not a zero sum game where wage and economic gains by one country are equally offset by losses of the other country. It's assumed that both countries will gain. Mexico will employ more lowered wages/skilled workers and the U.S. will train and hire higher paid employees in technology. This concept requires both countries to continually educate and train its workforce(s) which will lead each country to higher standards of living.
Wages are a little simpler. Both candidates propose increasing the minimum wage (many Republicans would argue that any minimum wage is economically unhealthy); they only differ in how much to raise it. Clinton proposes a $12/hr rate and Trump (as of last month) supports $10/hr. The current national minimum wage is $7.25 but some states like Washington, California and Oregon have already significantly raised the state's minimum. Companies that use minimum wage workers contend that they'll simply raise the cost of good and services to account for their higher employee costs. Both presidential nominees contend that a wider base of higher compensated employees will result in the employees having more disposable income and they will then buy more goods and services. Henry Ford, the founder of the Ford Motor Company set wages for his employees high enough that they could buy the products they built. While this concept may be simple, determining the optimal level for the minimum wage is often disputed.
Donald Trump named his economic team today which should provide more examples of the varying programs and proposals from each candidate.
At Berkeley, Inc. we read a wide range of publications so we can evaluate issues from a variety of perspectives. The Brookings Institution is one of those sources. In the article below they explore the viability of Social Security and how trending demographics may affect it.
If you find this useful you can read much of their research and publications for free (www.brookings.edu).
What growing life expectancy gaps mean for the promise of Social Security
Occasionally we like to post articles that give you some insight into how we form our opinions or stay informed.