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December 2019 Economic Observer


A key reason existing home sales have remained lackluster despite record low unemployment and spectacularly low interest rates is homeowners now stay in their homes for about 13 years, up from eight years as recently as 2010. Thus, the inventory of for sale homes has plummeted from 3/100 households as recently as 12/07 to just 1.25 in 9/19, a decline of 58% and the lowest level since at least 1985.



Near steady job growth in an economy that’s meaningfully slowing is odd. Shouldn’t employment growth decline too? I think several factors are at work. Our economy is increasingly service oriented and efficiency gains in that giant sector are limited; relatedly more lower productivity jobs are being created. And most importantly, corporate investment was about 2.7%/year from 1998-2008 but just 1.7% since, and that boosts employment demand by reducing productivity growth.



While oil prices are down about 25% this year, share prices of oil & gas firms are down, on average, 50%. And of the 70+ US-based oil companies, only one has a share price that has not declined over the past year. Why? There is a growing consensus that the breakeven price for energy exploration-and-production, including fracking, exceeds the current $50-$55/bbl range. To wit, rig counts have fallen 24% Y-o-Y.



While Medicare for All offers advantages, be careful. Eliminating private insurers, the gate keepers who reduce access and overuse, will result in greater demand. If reimbursement rates are much reduced, doctors will earn less, time per patient will decline, and fewer doctors will graduate. Lower drug prices will reduce innovation and bringing healthcare cost growth/year down to GDP growth/annum is nigh impossible given demographics and inevitable patient and provider backlash.



Last decade, European growth and inflation were decent because excess savings in Germany and the north were matched by excess spending in Greece and other southern nations. Since the sovereign-debt crisis, southern nations have become much more frugal out of necessity, but the north has not boosted spending due to hostility towards the south, and an irrational fixation with paying down debt despite a vastly different economic landscape.



Perpetual Guardian, a New Zealand trust company, reduced its workweek from five days to four. Productivity jumped 20%. Last October, the firm made the switch permanent. This past summer, Microsoft Japan trialed the same thing. Productivity rose 40%, electricity costs fell 23% and pages printed fell 60%; maybe because standard meetings were slashed from 60 to 30 minutes! In 1860, work weeks exceeded 60 hours.


Source: Elliot Eisenberg, PhD, Chief Economist for GraphsandLaughs, LLC, an economic consulting firm serving a variety of clients across the United States. All rights reserved.

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