Haver Analytics
Haver Analytics

Viewpoints: June 2024

  • State labor markets were again mixed to moderate in May. Seven states (counting DC here) had statistically significant gains in payrolls , with the most impressive gain Idaho’s .9 percent increase, while both California and Texas had increases over 40,000 The other states, had changes deemed to be insignificant, including New York’s increase of more than 20,000.

    Four states had statistically significant declines in their unemployment rates in April, and three had increases. None were larger than .2 percentage point. The highest unemployment rates were in DC (5.3%), California (5.2%), DC (5.2%) and Nevada (5.1%). No other state had rates as much as a point higher than the national 4.0%. Alabama, Hawaii, Iowa, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Nebraska, New Hampshire, North Dakota, South Dakota, Tennessee, Utah, Vermont, Virginia, Wisconsin, and Wyoming had rates of 3.0% or lower, with both Dakotas at 2.0%.

    Puerto Rico’s unemployment rate was unchanged at 5.8%, while the island’s job count edged up by 700.

  • The owner's equivalent rent (OER) index has received a lot of press lately because it's primarily responsible for keeping reported inflation well above the Fed's 2% target. Yet, if asked, many analysts and even policymakers probably need to learn why OER exists.

    OER is a concept unique to how housing units are accounted for in GDP statistics. In GDP, rental units and owner-occupied units are considered the same. To maintain this equivalence, an imputed estimate shows how much money owner-occupied units would have spent if they were renting to match the money tenants paid for housing. This process, which creates an artificial expenditure in consumer spending, necessitates the creation of a price measure or a deflator. That's because the government needs to estimate the imputed 'real' value of money owners spend for rent when calculating Real GDP.

    OER is a 'fake price, a unique concept involving zero transactions. No one actually pays OER, and as a result, it does not generate any economic activity such as sales, income, or jobs. Therefore, official rate increases do not affect the demand associated with OER. However, despite its unique nature, it has accounted for a significant part of the increase in consumer price inflation in the last three years. For instance, the increase in shelter costs contributed to more than a third of the 3.4% rise in consumer prices in the past twelve months.

    OER is suitable for GDP accounting, but why does the CPI use OER to measure housing costs? It's political because if housing costs were calculated based on house prices and borrowing costs, reported inflation would be much higher nowadays and would have run markedly higher for the past fifty years.

    BLS and the Fed should be humble enough to admit that, but they won't.