Plenty of non-news this week
You’ll never guess what Fannie Mae is doing – allowing homeowners facing foreclosure to rent their homes for up to a year. The move is an effort to prevent more foreclosed properties from hitting the market.
That idea sounds vaguely familiar but I can’t put my finger on it. Oh, right. I proposed it last February. No matter, it’s refreshing to see that it is possible for a pseudo-government agency to stumble upon a good idea.
The Deed for Lease Program allows homeowners who are unable to modify their mortgages to lease their homes for 12 months at market rents. Fannie Mae isn’t disclosing how many homeowners it expects to take advantage of the program but Fannie now possesses 63,000 properties, so my guess is they are about to become the world’s biggest landlord.
“If you keep more people in their homes, it’s better for the community. It’s better for the financial institutions that own those homes, said Jay Ryan, vice president of equity investments at Fannie Mae. “Hopefully, less foreclosure product on the market will help stabilize those communities.”
Ya think?
“If they can keep the property occupied and have at least some positive cash flow, that may end up being less worse than going the route of kicking them out and having a vacant home,” said Thomas Lawler, an independent housing economist.
I want to be an independent housing economist. How much does it pay?
Too bad Fannie’s cousin Freddie Mac isn’t as savvy. They have a program that allows homeowners to rent month-to-month, but the houses remain on the market. That’s more like the government programs we’ve come to know and love: stupid and ineffective. Two-thirds of those offered month-to-month rents by Freddie have accepted them.
In other non-news, the Federal Reserve left interest rates unchanged. There wasn’t an iota of speculation to the contrary. The only anticipation was what changes might be made to the much-analyzed statement.
The statement changes were equally uneventful. The FOMC added some detail related to what would cause them to alter course. These include improved resource utilization, inflation trends and stable inflation expectations.
Earth shattering stuff. If we continue to under-utilize our manufacturing capacity, and if inflation remains in check and we believe it will continue to remain in check, there are no plans to hike rates. Duh. The only problem with what seems to be an obvious strategy is that the Fed is likely to wait too long to raise rates.
The Fed might want to check the latest price for a barrel of oil. Despite the anemic consumer demand that is suppressing inflation, the weak dollar and market “forces” are fueling a surge in commodity prices. There are only two possible outcomes from rising commodity prices: inflation or declining corporate profits. Neither is part of a recipe for recovery.
On the other hand, if businesses continue to improve productivity at the pace they did in the third quarter it won’t matter how much raw material costs increase. The Labor Department indicated that output per hour for nonfarm workers rose at an annual rate of 9.6 percent last quarter. That’s four times higher than the 25-year average.
Over the past six months productivity gains have been the strongest since 1961.
There’s good and bad in that news.
The bad is everyone is working harder for the same money. Some might also say increases in productivity delay hiring. Actually, the increase in productivity was in large part a byproduct of layoffs.
Feel better now?
You should, because increased productivity is a precursor to job growth. At some point, assuming demand for goods and services increases, businesses won’t be able to squeeze any more out of their current work force and will have hire.
The other bit of goodness within the productivity news is that increased productivity does help counter inflation while also boosting corporate profits.
Some might consider that good for companies but not so good for worker bees.
However, when the economy finally gets back on track, on a global basis, U.S. companies will be in a stronger competitive position and that’s good for everyone.
The news that appeared not so good for anyone was Friday’s employment report. Unemployment breached the psychologically important 10 percent mark.
The unemployment rate jumped a substantial 0.4 percentage points bringing the overall rate to 10.2 percent.
Notwithstanding the jarring headline number, the news wasn’t all bad.
Job losses in October totaled 190,000 but there were upward revisions of 91,000 to the prior two months. (FYI: the upward revisions will result in a downward revision of the aforementioned productivity gains.) Overtime hours ticked up from 3.0 to 3.2, temporary employment increased, and hourly earnings rose 0.3 percent. These are all good leading indicators of future hiring.
The big question now becomes whether the 10.2 percent headline number will be the Grinch that stole Christmas. This isn’t an ideal time to test consumer confidence, but tested it will be.
My take: I’m cautiously optimistic.
Things are improving, just not fast. Thus my belief that the recovery will be slow. Expect continued negative employment numbers until around mid next year. Hey, just in time for the November elections. What luck for incumbents.
Author, professor, entrepreneur, radio and TV commentator Tony Paradiso can be reached at tparadiso@tds.net.
