For a week that included The Kentucky Derby, The Met Gala and the White House Correspondence Dinner for the nation’s elite, the economic news felt like it was seeking validation from Main Street a la Monica Lewinsky. As exciting as a 20 year old affair between a climber and the world’s one-time most powerful man should be, it just isn’t.
The week’s economic news started out on a positive note when the Institute for Supply Management’s (ISM) non-manufacturing index showed an increase to 55.2 percent in April, up from 53.1 percent in March. Any reading above 50 suggests economic expansion, which is good. Deeper into this report, the part that concerns us is the 2.3 point drop to 53.1 percent for the non-manufacturing employment component of the ISM non-manufacturing index, while new orders and business activity/production saw increases of 4.8 and 7.5 points respectively. So, businesses expected more and employees delivered, but new jobs weren’t created. The U.S.’s non-Jay Z-Carteresque malaise is due to high unemployment and stagnant wages. Simple pimple.
In other early week news, the Commerce Department reported that the trade deficit contracted in March by 3.6 percent to $40.4 billion from February’s revised $41.9 billion. But you don’t wash your blue dress just yet. A deeper dive into the numbers, as usual, causes concern. The three month moving average, which removes month-to-month volatility, for the first quarter of 2014 showed an increase to $40.5 billion from $40.0 billion from the last three months of 2013. This contraction shaved 0.83 percent off of the first quarter’s Gross Domestic Product (GDP) that put the economy’s 2014 annual growth rate at 0.1 percent. President Obama was unavailable for questions, as he was recovering from the all-important White House Correspondence Dinner.
March home prices were up 1.4 percent from February, but long-term trends posted a slowdown. 2014 growth through March showed an 11.1 percent increase, down from 11.8 percent for the year through February (yeah, two months). Increased unaffordability, in part caused by the 43 percent of all-cash home sales in the first quarter, and stricter loan requirements are to blame. Don’t expect March’s trend to pull Millennials out of the basement vortex just yet. Millennials are focused on one thing and, justifiably, it’s retirement.
The Labor Department reported on Wednesday that overall U.S. productivity for the first quarter fell at a 1.7 percent annual rate. Hours worked increased 2.0 percent and output of goods and services increased a disappointing 0.3 percent, while manufacturing maintained consistency and increased 3.3 percent over the same period. Looking for the devil in the details, we learn that wages increased by only 0.5 percent over the same period after adjusting for inflation. The U.S.’s non-Jay Z-Carteresque malaise is due to high unemployment and stagnant wages. Simple pimple. You aren’t seeing double. We said that twice because it’s worth repeating.
Stagnant wage may explain the largest U.S. consumer credit increase in a year by $17.53 billion. The money must come from somewhere. Since consumers/employees can’t rely on their employers to increase wages, many consumer/employees are tapping their future through premature 401K withdrawals and increased revolving and non-revolving credit.
Wrapping up the week on a positive note the Labor Department on Thursday reported that fewer people filed initial unemployment claims last week by 26,000 to a seasonally adjusted 319,000. This broke a three week losing streak. Also reported on Thursday, were April retail sales, which posted its second monthly increase in a row by 4.6 percent.
The Labor Department reported on Friday that employers posted 4 million jobs openings in March, down 2.7 percent from February. Hires and quits were revised up for February and in March reached its highest level since July 2008. Also reported on Friday, U.S. wholesale inventories increased 1.1 percent in March, up from a revised 0.7 percent in February. This data continues the long yawn of economic improvements the U.S. has experienced since the housing and banking bust of 2008.
While the official unemployment rate continues to show signs of improvement, Millennials and the long-term unemployed beg to differ, especially those who meet both definitions. We’ve said for months that long-term unemployment of Millennials is having a disastrous effect on the economy through delayed marriages and first time home purchases, a decreased birth rate, reduced wedding and baby showers, and new-to-the-buyer home renovations. Now someone has put a number to that. The Center for American Progress estimates that the 1 million long-term unemployed Millennials “will lose more than $20 billion in unearned wages over the next ten years.” Ouch! With Millennials having more people in their cohort than Baby Boomers, the negative effects of this will last for decades.
We’re happy to see that Millennials are more focused on saving for retirement than they are with their first home purchase. The U.S. housing market, much like the U.K., is a topsy-turvey market and not the best place for the financially strapped to invest. Potential home buyers are using common sense, by refusing to pay a 20 percent premium on new homes despite their desire. For those who do own their own home or buy one in the near future, here are four reasons to pay off your mortgage early. For us, #2 is our motivation.
That’s our recap of this week’s economic and personal finance news that’s worth your time. Come back every Friday for the Debt Free Guys’ #MoneyConscious Mash Up where we attempt to make finance a little less boring.
Oh, and don’t forget that Sunday is Mother’s Day and your grandma is a mother. Hopefully we don’t need to explain why. Here’s a list of ingenious Mother’s Day gifts for your grandma.