February Architecture Index for New Project Inquires Reaches the Highest Level Since July 2007

"Led by the commercial sector, the Architecture Billings Index (ABI) has remained in positive territory four months in a row. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the February ABI score was 51.0, following a mark of 50.9 in January. This score reflects a slight increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 63.4, up from mark of 61.2 the previous month and its highest reading since July 2007.

“This is more good news for the design and construction industry that continues to see improving business conditions,” said AIA chief economist Kermit Baker. “The factors that are preventing a more accelerated recovery are persistent caution from clients to move ahead with new projects, and a continued difficulty in accessing financing for projects that developers have decided to pursue.”

MP: More data to suggest that the construction market is showing gradual, but steady signs of improvement.   

Cartoon of the Day

Another great one from the best in the business, Michael Ramirez of Investor's Business Daily.

Number of LSAT Tests Drop to an 11-Year Low

Chronicle of Higher Education -- "The number of Law School Admission Tests administered this year declined by 16.2%, the largest drop in more than a decade, the Law School Admission Council reported. The numbers reflect widespread pessimism about the value of a legal education today as education debts soar and job prospects remain dim.

The decline, from 155,050 tests in 2010-11 to 129,925 this year, follows the previous year's 9.6-percent fall (see chart above, data here).

The drop comes at a difficult time for the nation's law schools. A team of lawyers representing disgruntled law-school graduates has filed 15 lawsuits against law schools for allegedly publishing inflated data on the jobs and salaries of their graduates. The lawyers recently announced plans to sue 20 more schools if they round up enough plaintiffs to pursue class-action lawsuits, and to continue cranking out batches of suits every few months.

In the meantime, unhappy graduates have taken to so-called "scam blogs" to decry what they see as deceptive reporting on jobs and salary data."

Related: "Pop, Goes the Law School Bubble"

Walmart Adds 125 New Jobs Every Day in March

In just the first 19 days of March, Walmart has announced new 13 stores openings or expansions, which will bring 2,380 new jobs to those retail locations all across the country from Reno to Philadelphia. 

Some Food Prices Have Been Falling Over Last Year

Item	% Change Feb. 2011-Feb. 2012
Lettuce	-30.1%
Cabbage	-26.7%
Tomatoes	-21.8%
Broccoli	-18.9%
Strawberries	-15.6%
Oranges	-13.9%
Peppers	-12.3%
Bologna	-11.8%
Lemons	-11.1%
Potatoes, Frozen	-7.7%
Pears	-6.3%
Butter	-5.5%
Grapes	-4.1%
Rice	-3.9%
Bananas	-3.5%
Round Roast	-3.4%
Chicken Breast	-2.2%
Apples	-2.2%
Ham	-0.8%
Grapefruit	-0.5%

For the food items listed above (data here), the average retail prices have fallen over the 12-month period from February 2011 to February 2012, and for about half of the items the deflation has been in double-digits. 

Law of Unintended Consquences

Here's an interesting Crain's New York Business article that illustrates the "Law of Unintended Consequences."

Residents and politicians on the Upper West Side of Manhattan are trying to protect small businesses and mom and pop shops, and prevent big box stores, banks, and drug stores from taking over huge storefront spaces (think "Walmart").  There are new zoning laws being proposed that would restrict new ground-floor retail storefronts on Columbus and Amsterdam to 40 feet and limit the frontage of banks on Amsterdam, Columbus and Broadway to 25 feet.  From the article:

The zoning proposal, backed by local politicians and the Bloomberg administration, would limit the size of new storefronts. But more than two dozen large (and beloved) mom-and-pops could face skyrocketing rents when their outsize footprints are grandfathered and become coveted by the very chain businesses that rezoning supporters want to curtail.

Unintended victims could include Upper West Side institutions like Barney Greengrass and Albee Baby Carriage Co., which have been in business on Amsterdam Avenue for 100 and 80 years, respectively; longtime cafés, funeral homes and hardware stores; and Mediterranean- inspired mainstays such as Columbus Avenue's Isabella's and Amsterdam's Gennaro.

“They'd all become targets instantly,” said Rafe Evans of Walker Malloy & Co., a local brokerage. “Their landlords would be sitting on gold mines.”

So the new zoning law will solve one problem, yet may drive out some of the neighborhood’s longtime popular local businesses.

HT: Adam Librot

Quote of the Day on Emerging Technology

Regarding energy policy.....

"I prefer the "old" approach to emerging technology: We adopt new technology when it is better and cheaper than the old technology, not when it is worse and more expensive, forced to convert over by a government demanding we pay more for less -- so we can reap all these speculative benefits in a hypothetical future."

~ Ace of Spades HQ

Shift in Fracking Workers Will Boost Oil Production in the "Fastest Growing Oil Frontier in the World"

NEW YORK (Reuters) - "Collapsing natural gas prices have yielded an unexpected boon for North Dakota's shale oil bonanza, easing a shortage of fracking crews that had tempered the biggest U.S. oil boom in a generation.  Energy companies in the Bakken shale patch have boosted activity recently thanks to an exceptionally mild winter and an influx of oil workers trained in the specialized tasks required to prepare wells for production, principally the controversial technique of hydraulic fracturing.

State data released this month showed energy companies in January fracked more wells than they drilled for the first time in five months, suggesting oil output could grow even faster than last year's 35% surge as a year-long shortage of workers and equipment finally begins to subside.

As output accelerates, North Dakota should overtake Alaska as the second-largest U.S. producer within months, extending an unexpected oil rush that has already upended the global crude market, clipped U.S. oil imports, and made the state's economy the fastest-growing in the union.

The number of idle wells waiting to be completed in the state reached a record 908 last June, the result of a new drilling rush and heavy spring floods. Only 733 wells were idle in August as crews caught up, but the figure crept steadily higher until the start of this year. Now, the industry may be turning a corner in North Dakota, the fastest-growing oil frontier in the world.

"Both rig count and hydraulic fracturing crews are limiting factors. Should they continue to rise together, production will not only increase, it will accelerate," said Lynn Helms, director of the state Industrial Commission's Oil and Gas Division."

MP: The chart above illustrates the nationwide shift from drilling for natural gas to drilling for oil over the last several years.  The shift in capital equipment and labor towards oil will allow production in North Dakota -the "fastest-growing oil frontier in the world" - to grow even faster.

Real Estate Market Gradually Improves

1. MLIVE -- "Michigan home sales surged 14% in February compared to one year earlier, while the average sale price dropped nearly 3%, according to data from the Michigan Association of Realtors (MAR).

 An improved economy and low interest rates have boosted Michigan’s housing market after years of turmoil. There were 8,284 homes sold in February, up 14% from 7,245 sold in February 2011, according to MAR. A 14% increase is “pretty remarkable,” said Bill Martin, CEO of the trade group."

2. DQ News -- An estimated 29,630 new and resale houses and condos were sold across California last month. That was up 5.4% from 28,111 in January, and up 8.5% from 27,320 in February 2011.  Last month's sales were the strongest for a February since 31,228 homes were sold in 2007. On a year-over-year basis, sales have increased the past seven months.

3. DQ News -- "A total of 5,702 new and resale houses and condos sold in the nine-county Bay Area in February. That was up 4.1% from 5,479 in January, and up 14.2% from 4,991 in February 2011. The year-over-year sales increase was the eighth in a row. Last month’s sales count, which got a lift from an extra business day thanks to the leap year, was the highest for a February since 6,305 were sold in 2007.

4. Over the last six months, the SPDR S&P Homebuilders ETF is up by about 50% compared to about an 18% gain for the S&P500 Index.

5.  The U.S. homebuilder outlook was unchanged this month, but remained near a 4-year high. 

P.J. O'Rourke on Cato's "Family Feud"

From the Weekly Standard:

"Cato has aided me with almost everything I’ve written about politics. Maybe saying so will lower the institution’s prestige enough that the Koch brothers will leave it alone. If they prevail they’ll lose Cato’s H.L. Mencken Research Fellow. (The position—unpaid and worth it—was conferred on me by Crane back when the insensitive language in Mencken’s diary was shocking the kind of people who’d later forget to be shocked by Bill Clinton and Monica Lewinsky.)

More to the point, the Koch brothers will lose the think tank’s impressive roster of thinkers and scholars. I haven’t polled them as to who would stay and who would go under a Koch regime. But, as I said, I know libertarians. If the Kochs win the pot, they’ll have to piss in it. It will be empty otherwise."

HT: Fred Dent

New Restaurant Index Suggests Improving Economy

From Floyd Norris in the NY Times last Friday:

"Have you been eating more at restaurants with waiters rather than fast-food joints? If so, you are not alone, and that in fact is an indication that the American economy is improving.

Over the 12 months through January, sales at what the government calls full-service restaurants were 8.7 percent higher than in the previous 12 months. That was the fastest pace of growth since the late 1990s, when the economy was booming. Moreover, as is seen in the chart above, that rate was much greater than the rate of growth in sales at limited-service restaurants. 

Since those numbers became available 20 years ago, that difference has been a reliable indicator of how the economy is going. In tough times, people may still eat out, but they cut back."

Related: The National Restaurant Association's "Restaurant Performance Indexes" also point to strength in national restaurant activity, and that growth is expected to continue according to the association's "Expectations Index," which measure restaurant owners' six-month outlook for the industry.   

Chicago Fed: Midwest Manufacturing Is Booming

The ChicagoFederal Reserve reported today that its Midwest Manufacturing Index (CFMMI) increased 1.3% in January, to a seasonally adjusted level of 90.1 (2007 = 100).  Here are some highlights of manufacturing activity in the 7th Federal Reserve district that covers Illinois, Indiana, Iowa, Michigan, and Wisconsin:

1. Manufacturing output in the Midwest region rose 9.1% from a year earlier in January, almost twice the 4.7% increase in national manufacturing output over the same period (see chart).
         
2. Regional machinery output in January was up 11.1% from its year-earlier level, compared to a 4.6% increase in machinery output at the national level. 

3. Regional steel output was up 13.4% from its January 2010 level, compared to an 8.7% increase in national steel output over that period.

4. The Midwest’s automotive output was up 17.5% in January from its year-ago level, compared to a 12.1% gain in national automotive output. 

MP: The manufacturing sector of the U.S. economy grew at 4% last year, or more than twice the 1.7% growth in overall GDP, so it's pretty clear that American manufacturing is at the forefront of the economic recovery as has been frequently reported here and elsewhere.  And given the growth in Midwest manufacturing activity over the last year (+9.1%) compared to output at the national level (4.7%%) as reported today by the Chicago Fed, I think we can say that it's "Midwest manufacturing" that's at the forefront of the economic recovery.  The Rust Belt is coming back.  

Invoking the Coase Theorem for Fracking Noise

From Kevin Williamson's excellent article in National Review "The Truth About Fracking":

"There are other workaday environmental problems endemic to fracking: For the three to five days a frack lasts, it’s loud — really, really loud, because it’s basically a construction site, with a vast array of pumps and compressors and giant margarita mixers blending sand into the water, and a big battery of generators to run it all. There’s not much to be done about the noise, though you’re typically not fracking real close to densely populated areas.  

A few firms have hit upon the novel approach of simply offering nearby homeowners money to go away for the week, expenses paid, or at least putting them up in a hotel for the duration. (An idled fracking rig might cost you $1 million a week — you can afford to pay a lot of HoJo bills to keep that from happening.)

This is a good example of the Coase theorem, which predicts that bargaining can lead to economically efficient outcomes when externalities (like noise in this case) are present and transaction costs are low.   

HT: Gayle Pooley

True March Madness: $2.7B in Taxpayer Subsidies

March Madness showcases some of the best athletes and most exciting games in college sports. Unfortunately, the Men's NCAA Basketball Tournament also highlights the worst in wasteful government spending, according to this press release from the Taxpayers Protection Alliance (TPA).  

The taxpayer watchdog group found that all 13 arenas hosting games for this year's tournament have received millions of dollars from local, state and federal taxpayers, totaling to a whopping $2.7 billion. 

Here's an article by Taxpayer Protection Alliance senior fellow Drew Johnson about how the venues hosting March Madness games are costing taxpayers billions of dollars in handouts, with the conclusion that:

"Given the $2.7 billion in tax money used to subsidize NCAA tournament venues, “March Madness” may soon have a whole new meaning for taxpayers."

Mfg. Jobless Rate: Below National Avg. for 9 Mos.

In February, the jobless rate for manufacturing was 8.4% (not seasonally adjusted) compared to the 8.7% national rate for all industries (not seasonally adjusted).  That marks the ninth consecutive month starting last June that the jobless rate for the manufacturing sector of the U.S. economy has been below the national jobless rate, and reverses a 32-month period from October 2008 to May 2011 when the manufacturing jobless rate was equal to or higher than the national average rate.  The gap during that period was at its highest in April 2009 when the manufacturing jobless rate was almost 4 points higher (at 12.4%) than the national average rate of 8.6%.  

There has never been a comparable 9-month period going back to when the BLS started tracking jobless rates by industry that manufacturing unemployment was below the national average for that many consecutive months.  As reported previously, U.S. manufacturing has been leading the recovery on many economic measures including job creation, output growth and profits. 

Markets in Everything: Cave Homes in China

LA Times -- "More than 30 million Chinese people live in caves, many of them in Shaanxi province where the Loess plateau, with its distinctive cliffs of yellow, porous soil, makes digging easy and cave dwelling a reasonable option (see photo above).

"It's like living in a villa. Caves in our villages are as comfortable as posh apartments in the city," said Cheng Wei, 43, a Communist Party official who lives in one of the cave houses in Zaoyuan village on the outskirts of Yanan. "A lot of people come here looking to rent our caves, but nobody wants to move out."

The thriving market around Yanan means a cave with three rooms and a bathroom (a total of 750 square feet) can be advertised for sale at $46,000. A simple one-room cave without plumbing rents for $30 a month, with some people relying on outhouses or potties that they empty outside."

What Isn't For Sale?..... But Maybe Should Be?

In The Atlantic Magazine article "What Isn't For Sale?", Harvard political philosopher Michael Sandel points to some interesting "markets in everything": 

• paying for a prison cell upgrade in California
• dynamic market-based toll roads for solo drivers in some cities like Minneapolis
• Indian surrogate mothers who charge one-third the going rate in the U.S.
• commercial game hunting in South Africa for endangered species like the black rhino ($250,000 fee)
• concierge doctors charging patients for access to their cell phone number
• selling advertising space on your forehead
• paying somebody to stand in line overnight

But the author isn't exactly celebrating the efficiency or welfare-increasing features of the market economy with these examples, he's actually questioning whether markets have gone a little bit too far when "everything is up for sale":

"The most fateful change that unfolded during the past three decades was not an increase in greed. It was the reach of markets, and of market values, into spheres of life traditionally governed by nonmarket norms. To contend with this condition, we need to do more than inveigh against greed; we need to have a public debate about where markets belong—and where they don’t. 

Why worry that we are moving toward a society in which everything is up for sale? 

For two reasons. First, consider inequality. In a society where everything is for sale, life is harder for those of modest means. The more money can buy, the more affluence—or the lack of it—matters. If the only advantage of affluence were the ability to afford yachts, sports cars, and fancy vacations, inequalities of income and wealth would matter less than they do today. But as money comes to buy more and more, the distribution of income and wealth looms larger. 

The second reason we should hesitate to put everything up for sale is more difficult to describe. Putting a price on the good things in life can corrupt them. That’s because markets don’t only allocate goods; they express and promote certain attitudes toward the goods being exchanged.

A debate about the moral limits of markets would enable us to decide, as a society, where markets serve the public good and where they do not belong. Thinking through the appropriate place of markets requires that we reason together, in public, about the right way to value the social goods we prize. It would be folly to expect that a more morally robust public discourse, even at its best, would lead to agreement on every contested question. But it would make for a healthier public life. And it would make us more aware of the price we pay for living in a society where everything is up for sale."

MP: A few comments:

1.  "In a society where everything is for sale, life is harder for those of modest means." And yet several of the examples provided contradict that statement: those of modest means can improve their lives with access to the markets for surrogate mothers, standing in line overnight and selling advertising space on their foreheads. 

2. "A debate about the moral limits of markets would enable us government to decide, as a society, where markets serve the public good and where they do not belong." 

It seems like the author is basically advocating greater government control and intervention over markets (us = government), which would necessarily limit or restrict voluntary transactions at market prices, e.g. making it illegal to sell bone marrow or a kidney.  In other words, it's the standard "markets fail, use government" approach, in which case we would have to be very concerned about "government failure."

3. Maybe the question should be: "What isn't currently for sale now because of government legislation that really should be for sale?" Like raw milk, kidneys, bone marrow, lemonade stands, etc.

HT: Warren Smith

February Industrial Production: Strong Gains for Business Equipment, Manufacturing, Durables

In yesterday's report on industrial production, the Federal Reserve reported that the production of business equipment increased in February for the tenth straight month and reached a new record high of 104.9 (see chart above).  Compared to February of 2011, business equipment output was 11% higher this year, and for the last two months has been above the previous record high of 104.2 set in March 2008 during the early months of the recession. 

Another highlight of the report:

Manufacturing output in February was 5.2% above its year-earlier level, led by a 8.5% increase in durable manufacturing, with strong gains in durable goods industries like motor vehicles and parts (+13.4%), aerospace and transportation equipment (+14.3%) and fabricated metal products (+10.8%).   More evidence that the manufacturing sector continues to be at the forefront of the economic recovery.

Happy St. Patrick's Day from Guinness

St. Patrick's Day Sheep Dog Trials

In the video above, watch how a highly trained border collie rounds up some mates to ensure they get to the pub on St. Patrick's Day and enjoy a GUINNESS.

Intrade Update: 88.5% Romney, 60.2% for Obama

Odds for Romney to be the Republican nominee remain steady and are close to an all-time high of 88.5%, while Obama's odds to get re-elected remain steady at 60.2%.

Saturday Morning Links

1. Minnesota Moves Forward on a Right-to-Work Ballot Proposal for November, Taps Michigan's Mackinac Center for Bill Wording. 

2. New ADA Rules for Disabled Access to Swimming Pools Go Into Effect, and May Force Some Hotels to Close Their Pools.  (ht/Peter Parlapiano)

3. Manufacturing renaissance: Cheap, abundant natural gas will allow U.S. steelmakers to cut costs and lower selling prices at home, and could help drive greater U.S. steel exports.

4. Larry Kudlow reports that a new Joint Economic Committee study shows that a 10-15% appreciation of the dollar to pre-recession levels would lower gas prices by 42 cents per gallon. 

5. "This American Life" retracts its radio story on the production of Apple's iPad and iPhone in China using outsourcing giant Foxconn, for “significant fabrications.”

Today's Reports on Inflation, Inflation Expectations

Highlights from today's reports on inflation:

1. The BLS reported an annual inflation rate of 2.9% through February, matching the rate from January.  The annual core inflation rate was 2.2%, slightly lower than the 2.3% rate in January.

2. Gasoline prices rose by 6% for the month of February and by 12.6% over the last year.  Partly offsetting those increases were decreases in natural gas prices: -3.4% for the month, and -9.8% for the last year. 

3. The Cleveland Fed's median CPI inflation increased by 2.3% over the year, down slightly from 2.4% in January.

4. The Cleveland Fed also reported that its latest estimate of 10-year expected inflation is 1.38%, up just slightly from 1.34% last month (see chart above).  The Cleveland Fed provides monthly estimates of expected inflation over time horizons from 1 to 30 years, see its methodology here.  Over the next year, inflation expectations are 1.2% and over the next 30 years only 1.95%.

Bottom Line: Except for gasoline prices, there don't appear to be any widespread inflationary pressures building in the economy, and expectations of future inflation according to the Cleveland Fed's model are falling.

Markets in Everything: College Degree for < $10k

Texas Tribune -- "Officials from a few Texas community colleges and universities said that $10,000 bachelor's degrees are available now — and more will be within the year.  At Texas A&M-San Antonio, a bachelor's in information technology with an emphasis on cyber security will cost about $9,700. Starting in 2013, a bachelor's of applied science in organizational leadership will be available for under $10,000 in South Texas College."

With Rising Wages in China, Production is Moving

1. From the WSJ on Wednesday:

"Global companies already have been facing higher labor prices in China over the past year, despite a weak global economy, as workers demand a greater share of the country's economic boom. In recent months, the pressure also has intensified in countries across Southeast Asia that have marketed themselves as alternatives for companies seeking to escape China's rising costs, leaving those companies now with fewer places to move.

Over the past year, for example, U.S. menswear retailer Jos. A. Banks Clothiers has moved some manufacturing from China to cheaper locations in Asia such as Indonesia, as the price of labor and goods increased."

2. And now even Chinese bicycle manufacturers are started to move production overseas:

"Chinese bike manufacturers are beginning to look at expanding into new markets in Southeast Asia in the face of rising labor costs and restrictive export duties to Europe.

Manufacturing has already begun shifting inland from China’s coastal cities as labor costs have risen, and now producers are beginning to look overseas to keep prices competitive on low-end mass production."

HT: Mike Henne

Markets in Everything: Trade Your Car for a Bike

"With gas prices soaring again, car buyers are looking for more fuel-efficient vehicles. The Santa Monica Mountains Cyclery (SMMC), a bike shop in Woodland Hills near Los Angeles, has a different idea – drivers should opt for bicycles instead. And, to facilitate the transition, for a limited time they will accept cars as trade-ins toward new bicycle purchases.

For a limited time from March 19-25, SMMC will work with a local auto dealer, Vista Ford, and accept cars and SUVs in trade toward the purchase of a new bicycle. Consumers will head to SMMC and pick out their new, fuel-efficient bicycle. Then, they’ll go across the street to Vista Ford to have their vehicle evaluated and appraised. They trade the car to Vista Ford and return to SMMC to ride home on their new, truly carbon-friendly ride."

HT: Mike Henne

Fossil Fuel Production (Coal, Oil, Gas) on Federal Lands Falls to Lowest Level in 9 Years, Since 2003

The EIA released data this week on the "Sales of Fossil Fuels Produced from Federal and Indian Lands, FY 2003 through FY 2011," with the following highlights summarized by the Institute for Energy Research:

• Fossil fuel (coal, oil, and natural gas) production on Federal and Indian lands is the lowest in the 9 years EIA reports data and is 6 percent less than in fiscal year 2010 (see chart above).
• Crude oil and lease condensate production on Federal and Indian lands is 13 percent lower than in fiscal year 2010.
• Natural gas production on Federal and Indian lands is the lowest in the 9 years that EIA reports data and is 10 percent lower than in fiscal year 2010.
• Natural gas plant liquids production on Federal and Indian lands is 3 percent lower than in fiscal year 2010.
• Coal production on Federal and Indian lands is the lowest in the 9 years of data that EIA reported and is 2 percent lower than in fiscal year 2010.

Markets in Everything: Homeless Hotspots

More from the America Blog -- 

"A PR firm is working with local homeless advocates to help homeless people in Austin make some money by carrying around their own personal mi-fi boxes that they use to sell a few minutes of wireless access to people on the street.  Mi-fi is a kind of portable wi-fi emitter that creates a small bubble of wi-fi that you can use on the go (basically the same way that people can use their cell phones to create a small bubble of wifi for their ipads or their laptops).  It's a small electronic box, maybe the size of a cigarette box but thinner, and it can pick up an Internet signal via the air and emit it as wi-fi for up to 20 or 30 feet or something.  A number of the homeless are walking around Austin with these emitters, and charging people to get the password for 15 minutes or whatever."

HT: Tom Dilling

Cartoon of the Day

Thursday Morning Links

1. World crude steel production rose to a new record high in 2011 of 1,527 megatonnes, a 6.8% increase from 2010.  China produced more than 45% of world steel output in 2011 (695.5 megatonnes), while the U.S. ranked No. 3 with 86.2 megatonnes.

2. Excellent 6-minute animation of hydraulic fracturing and horizontal drilling. HT: Mike Carlson

3. Website that helps you find out which licenses and permits your business needs. 

4. Natural gas is expected to take another 14% of coal's market share in 2012, bringing coal's market share down to 36%.

5. Don Boudreaux's latest letter-writing brilliance about greedy speculators, including consumers who fill up with gas when their tank is more than half full, in anticipation of higher prices later. 

6. New drilling technologies and rising oil prices have generated a boom in drilling - and lots of high-paying jobs.

7.  The Myth of Scarce Oil in America - The U.S. May Have 60 Times More Oil Than Obama Claims, according to John Merline in yesterday's IBD. 

8. A History of U.S. Income Taxes, from Turbotax. 

Today's Economic Reports

1. Seasonally-adjusted weekly initial claims for unemployment fell to 351,000 for the week ending March 10, which is the lowest level in four years, since 347,000 claims for the week ending March 8, 2008. 

2. Year-over-year Producer Price inflation for finished goods was 3.3% for the year ending in February, which was the lowest annual inflation rate since August 2010, and less than half of the 7% average inflation rate for finished goods from May through September last year.

3. Manufacturing activity in New York state continued to expand at a healthy pace and manufacturers in the state remain highly optimistic about activity over the next six months, according to today's Empire State Manufacturing Survey from the NY Fed. 

More evidence of an economy making gradual, but ongoing improvements.  

Housing Affordability Reaches Record High in Jan.

The National Association of Realtors' Housing Affordability Index exceeded 200 in January for the first time ever and reached a new record high of 206.1, meaning that the typical American household has more than double the income needed to qualify for the purchase of a median-priced home.  Based on the hypothetical purchase of the median-priced home of $154,400 in January, financed at the average mortgage rate of 4.37% (with a 20% down payment), the median family income of $60,944 was 206.1% of the $29,568 income required to qualify for the financing and the $616 monthly payments (principal and interest).   

Housing has never been more affordable in U.S. history than it is today, which should translate into robust home sales and an improving real estate market this spring and summer.   

So. California Home Sales for Feb. Highest Since 2007; Avg. Payments of $998 vs. $2,800 at Peak

DQ News -- "The Southland housing market posted the highest number of February home sales in five years as record levels of investor and cash buyers helped spur robust activity under $300,000. The median price paid for homes across the six-county region inched up from January but dropped below the year-earlier level for the 12th consecutive month. 

A total of 15,573 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 7.2 percent from 14,523 in January, and up 8.4 percent from 14,369 in February 2011. 

Here are some interesting highlights:

1. Sales did not rise across the price spectrum last month. Transactions below $300,000 rose 9.5 percent from a year earlier, while the number of $300,000-$800,000 deals dipped 0.8 percent year-over-year and sales above $800,000 fell 12.6 percent. 

2. Distressed sales continued to make up more than half of the resale market. Foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 32.5 percent of the resale market last month, down from a revised 32.6 percent in January and down from 37.0 percent a year earlier. Foreclosure resales hit a high for the current cycle of 56.7 percent in February 2009 and a low of 31.6 percent last November. 

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 20.5 percent of Southland resales last month. That compares with 21.1 percent in January, which was a high point for the current real estate cycle, and 19.7 percent in February 2011. 

3.  Absentee buyers – mostly investors and some second-home purchasers – bought a record 29.7 percent of the Southland homes sold in February, up from a revised 28.0 percent in January and 26.4 percent a year earlier.

4. The typical monthly mortgage payment that Southland buyers committed themselves to paying was $998 last month, compared with $983 in January, which when adjusted for inflation was the lowest in DataQuick’s records back to 1988. Last month’s figure was down from $1,174 for the same month last year. Adjusted for inflation, current payments are 56.9 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 64.7 percent below the current cycle’s peak in July 2007 [of $2,827].

Michigan: Most Improved Economy Since 2010

The chart above shows the monthly difference between the Michigan jobless rate and the national unemployment rate from January 2002 to January 2012.  In January, the monthly difference dropped to 0.70% as Michigan's jobless rate fell to 9% (lowest since September 2008) compared to the national rate of 8.3%.  That's the lowest Michigan-U.S. jobless rate spread since December of 2002, slightly more than nine years ago (see chart).

Over the last year from January 2011 to January 2012, Michigan's jobless rate has dropped by 1.9%, from 10.9% to 9%, which was the largest 12-month decrease among all of the U.S. states over that period.  And Michigan has gone from having the highest state jobless rate, or being among the top three states for most of the 2007-2009 recession, down to a rank of #40 out of #51 states and the District of Columbia in January.

I nominate Michigan as the most improved state economy since the recession ended. 

Chart of the Day: Rig Count Reversal Since 2010

The chart above displays updated data from Baker Hughes on rig counts for oil  and natural gas drilling in the U.S.  Over the last two years, there's been a complete reversal of the share of rigs drilling for oil vs. gas.  In March 2010, there were almost two rigs drilling for oil (926 rigs out of 1,392 total, or 66%) for every rig drilling for natural gas (466 rigs, or 34%), and now that's completely reversed, with 1,296 rigs drilling for oil out of 1,973 total rigs (66% of total) and 670 rigs drilling for natural gas (34% of total), for a ratio of almost 2:1 in favor of oil.

Overall, the number of drilling rigs has increased by 581 over the last two years from 1,392 to 1973, which is an increase of 42%.   

North Dakota Now No. 3 State for Oil Production

The EIA released monthly oil production data today by state through the end of 2011, confirming that for the first time ever, North Dakota's oil production in December (535,000 barrels per day) surpassed California  (531,000 barrels per day).  Based on December production, North Dakota is now the country's third-largest oil producing state behind Alaska and Texas.   

Markets in Everything: College Price Discrimination

Santa Monica College to offer two-tier course pricing:  "The school's governing board has approved a plan to offer certain high-demand classes for a higher price when the regular classes have filled up. It's believed to be the first such scheme in the nation.

Faced with deep funding cuts and strong student demand, Santa Monica College is pursuing a plan to offer a selection of higher-cost classes to students who need them, provoking protests from some who question the fairness of such a two-tiered education system.

Under the plan, approved by the governing board and believed to be the first of its kind in the nation, the two-year college would create a nonprofit foundation to offer such in-demand classes as English and math at a cost of about $200 per unit. Currently, fees are $36 per unit, set by the Legislature for California community college students. That fee will rise to $46 this summer."

HT: Mike LaFaive

With Car Sales Surging, Auto Parts Suppliers in Michigan Are Booming, Adding Thousands of Jobs

From Michigan Public Radio:

"Detroit automakers are creating thousands of new jobs amid a sales boom. And as they expand, their suppliers are racing to keep up, adding tens of thousands of new jobs.  In a dramatic reversal, many suppliers, after improving efficiency — through downsizing and buyouts — find themselves short-handed.

With the memory of the Great Recession still so fresh, companies are still wary about hiring too freely. But Sean McAlinden, economist with the Center for Automotive Research, says there actually is a danger of having a shortage of parts and workers. He says the supplier industry will need 174,000 additional workers by 2015, and the pace of hiring right now appears to be too slow.

Even when suppliers intend to hire right away, it's not easy. When all those supply companies went dark, many skilled tradesmen, machinists and engineers moved on." 

MP: Quite a reversal from a few years ago that auto parts suppliers in Michigan might now be facing a worker shortage. 

Creative Destruction: $7 iPad App Replaces $15,000, 20 Pound Communication Device

Bloomberg -- "Emma Edwards, 26, has no control over the fine motor muscles in her hands, which stay tightly and awkwardly clenched. She also can’t talk, walk or move her arms more than 20 inches at a time. Edwards, who suffered brain damage in 2001, can write e- mails, though, and she’s revisiting a favorite pastime, sketching, for the first time in a decade, thanks to her iPad and software applications that can cost as little as $7. 

 That’s a switch from the $15,000 communication device she had tried, a 9-pound machine approved by her insurer that tracks eye movement on a special grid corresponding to the alphabet. That device kept her tied to those in the room around her. The iPad, along with several other consumer-driven apps, has reopened the world to her. 

RJ Cooper & Associates, a closely held maker of software, accessories and applications for disabled people, has seen 85 percent of its business switch to the iPad in the past two years since Cupertino, California-based Apple introduced the tablet, according to R.J. Cooper, the Laguna Niguel, California-based company’s founder."

“The consumers took the lead this time,” Cooper said. “Parents are hiring people to create apps because they’re sick and tired of what’s available: 20-pound devices they can’t take to the playground.” 

HT: Gale Pooley

Creative Destruction: Encyclopedia Britannica RIP

R.I.P. Encyclopedia Britannica (print edition): 1768 - 2012

The Washington Post reports that Encyclopaedia Britannica will stop publishing its 32-volume, $1,400 print edition, but will continue its digital version. 

“This has nothing to do with Wikipedia or Google,” Encyclopaedia Britannica President Jorge Cauz said. “This has to do with the fact that now Britannica sells its digital products to a large number of people.”

MP: Isn't that like saying that declining classified revenues for newspapers has nothing to with Craig's List or eBay?

N. Dakota Bakken Shale Boom is Visible from Space

From the SkyTruth Blog:

"NOAA's National Geophysical Data Center provided us with this very interesting satellite image composite above of the upper Midwest, made from nighttime satellite images collected by the U.S. Air Force's Defense Meteorological Satellite Program.  State outlines are superimposed on the image.  

Multiple cloud-free images collected over several years have been combined to make this picture: 1992 is shown in blue, 2000 in green, and 2010 in red.  Places that had lots of light in all three years show up bright white (equal amounts of blue, green and red) -- that basically shows established cities and towns (like the Twin Cities) that haven't changed much over that time period.

But whoa, check out that big patch of red in the northwest corner of North Dakota.  That indicates an area of bright lights in 2010 that was dark in 2000 and 1992.  What could this be? Here's a hint:  a map showing the extent of the red-hot Bakken Shale oil-drilling boom that got underway a few years ago. Oil is being produced from the Bakken by drilling and hydraulically fracturing long horizontal wells. 

So why is this area all lit up at night?  Well, the rigs and other facilities are highly illuminated because drilling is a 24/7 proposition - time is money so there is no 'down time.'"

Shale Gale Makes US World's No. 1 Producer of Gas

The EIA reported today that the U.S. surpassed Russia as the world's No. 1 producer of consumer-grade, dry natural gas in both 2009 and 2010 (see chart).  Based on actual U.S. production in 2011 and an estimate of Russia's production for last year, it's also likely that the U.S. was the world's leading producer of natural gas in 2011 as well, see chart above. 

In 2005, Russia produced 17% more natural gas than the U.S. when the U.S. was using conventional drilling, but then U.S. production increased by 18% between 2005 and 2010, mostly because of the growth in shale gas production from the increased use of advanced hydraulic fracking technology and horizontal drilling over that period.  

Until Math Do Us Part: John Tierney's Refined Prediction Model for Celebrity Marriages

Click to enlarge.

In 2006, New York Times columnist John Tierney published the equation above that was developed to calculate the probability that a celebrity couple would stay married.

The variables in the mathematical model included: the relative fame of the husband and wife, their ages, the length of their courtship, their marital history, and the sex-symbol factor (determined by looking at the woman’s first five Google hits and counting how many show her in skimpy attire, or no attire). 

Now, with more than five years of follow-up data and empirical testing, John Tierney reported in yesterday's New York Times that there is firm statistical support for the "Sundem/Tierney Unified Celebrity Theory." For example:

"The 2006 equation correctly predicted doom for Demi Moore and Ashton Kutcher; Pamela Anderson and Kid Rock; and Britney Spears and Kevin Federline. It also forecast that Will Smith and Jada Pinkett would probably not make it to their 15th anniversary, in December 2012; so far, they’re still married, but gossip columns are rife with reports of a pending split.

On a happier note, the 2006 equation identified two couples with a good chance to make it to their fifth anniversary, in 2010: Ben Affleck and Jennifer Garner, and Matt Damon and Luciana Barroso. Sure enough, they made it (and are still married)."

But now Tierney and his co-author Garth Sundem have updated and refined the celebrity marriage prediction formula, and believe it now has even greater predictive power.  John explains:

"Whereas the old equation measured fame by counting the millions of Google hits, the new equation uses a ratio of two other measures: the number of mentions in The Times divided by mentions in The National Enquirer.

“This is a major improvement in the equation,” Garth says. “It turns out that overall fame doesn’t matter as much as the flavor of the fame. It’s tabloid fame that dooms you. Sure, Katie Holmes had about 160 Enquirer hits, but she had more than twice as many NYT hits. A high NYT/ENQ ratio also explains why Chelsea Clinton and Kate Middleton have better chances than the Kardashian sisters.”

Garth’s new analysis shows that it’s the wife’s fame that really matters. While the husband’s NYT/ENQ ratio is mildly predictive, the effect is so much weaker than the wife’s that it’s not included in the new equation. Nor are some variables from the old equation, like the number of previous marriages and the age gap between husband and wife.

In the fine tradition of Occam’s razor, the new equation has fewer variables than the old one. Besides the wife’s tabloid fame, the crucial ones are the spouses’ combined age (younger couples divorce sooner), the length of the courtship (quicker to wed, quicker to split), and the sex-symbol factor (defined formally as the number of Google hits showing the wife “in clothing designed to elicit libidinous intent”)."

Here is a list of some of the predictions using the new model, e.g. Prince William and Kate Middleton have a 71% chance of being married in 15 years, while Jennifer Lopez and Ojani Noa have only a 1% chance.   

HT: Morgan Frank

Law School Deans May Have Committed Federal Felonies, Conspiracy, Wire Fraud and Racketeering

Here's the abstract of a paper by two professors at Emory University School of Law, provocatively titled "Law Deans in Jail":

"A most unlikely collection of suspects - law schools, their deans, U.S. News & World Report and its employees - may have committed felonies by publishing false information as part of U.S. News' ranking of law schools. The possible federal felonies include mail and wire fraud, conspiracy, racketeering, and making false statements. Employees of law schools and U.S. News who committed these crimes can be punished as individuals, and under federal law the schools and U.S. News would likely be criminally liable for their agents' crimes.

Some law schools and their deans submitted false information about the schools' expenditures and their students' undergraduate grades and LSAT scores. Others submitted information that may have been literally true but was misleading. Examples include misleading statistics about recent graduates' employment rates and students' undergraduate grades and LSAT scores.

U.S. News itself may have committed mail and wire fraud. It has republished, and sold for profit, data submitted by law schools without verifying the data's accuracy, despite being aware that at least some schools were submitting false and misleading data. U.S. News refused to correct incorrect data and rankings errors and continued to sell that information even after individual schools confessed that they had submitted false information. In addition, U.S. News marketed its surveys and rankings as valid although they were riddled with fundamental methodological errors." 

From the paper's conclusion:

"It could be that none of these acts are crimes. But the evidence of possible crimes is sufficiently compelling, the relevant federal statutes have been applied so expansively, and the harm done for many years to thousands of people has been so severe, it should not be hard to recognize the need for investigations by federal authorities to determine whether crimes have been committed. This is not a game."

HT: Fred Dent

Energy Cartoons from IBD's Michael Ramirez

Click to enlarge.

Institute for Justice Goes Up Against the IRS

The video above features the Institute for Justice's latest heroic effort to defend small businesses and entrepreneurs against economic protectionism, empower individuals to earn an honest living, and promote economic liberty.  Here's a summary:

"Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power. But last year the IRS imposed a sweeping new licensing scheme that forces tax preparers to get IRS permission before they can work. This is an unlawful power grab that exceeds the authority granted to the IRS by Congress.

That is why on March 13, 2012, three independent tax preparers joined the Institute for Justice in filing suit against the IRS in the U.S. District Court for the District of Columbia. This lawsuit challenges the IRS’s statutory authority to impose this licensing scheme, and seeks to overturn regulations that would affect an estimated 350,000 tax return preparers, forcing many of them to stop working in the occupation of their choice."

Chart of the Day: Natural Gas Prices Fall to Fresh Record Low vs. Oil on an Energy-Equivalent Basis

Here's an update of a chart I've featured before comparing prices for oil and natural gas on an energy equivalent basis.  To compare oil (priced in dollars per barrel) and natural gas (priced in dollars per million BTUs) on an energy equivalent basis, natural gas prices have to be increased by a factor of 5.8, because one barrel of oil produces 5.8 million BTUs of energy. 

With natural gas selling for about $2.30 per million BTUs, its  equivalent price for the same energy as a barrel of oil would be $13.34, or 87% below the price of  WTI oil at $104.71 per barrel.  When measured on an energy equivalent basis, natural gas has never been cheaper than oil than it is today.  

Related: Forbes reports that major oil and gas companies Chevron and Exxon Mobil will continue drilling for natural gas, even with record low prices, with Chevron planning to double its production in the Marcellus region:

"Despite low natural gas prices, Chevron looks intent on pushing into the natural gas market in the U.S. The company plans to double its drilling in the Marcellus play this year while also drilling a few exploration wells in the Utica play despite gas prices touching their lowest point in a decade, making shale exploration less profitable. Chevron’s decision to press on with shale exploration mirrors that of rival Exxon Mobil, which has decided against production cuts."

In that case, we can expect natural gas prices to remain low. 

Thomas Sowell on The Big Hoax

"The biggest hoax of the past two generations is still going strong -- namely, the hoax that statistical differences in outcomes for different groups are due to the way other people treat those groups.

The latest example of this hoax is the joint crusade of the Department of Education and the Department of Justice against schools that discipline black males more often than other students. According to Secretary of Education Arne Duncan, this disparity in punishment violates the "promise" of "equity."

Just who made this promise remains unclear, and why equity should mean equal outcomes despite differences in behavior is even more unclear. This crusade by Attorney General Eric Holder and Secretary of Education Arne Duncan is only the latest in a long line of fraudulent arguments based on statistics.

If black males get punished more often than Asian American females, does that mean that it is somebody else's fault? That it is impossible that black males are behaving differently from Asian American females? Nobody in his right mind believes that. But that is the unspoken premise, without which the punishment statistics prove nothing about "equity."

Too many of the intelligentsia -- both black and white -- jump on the statistical bandwagon, and see statistical differences as proof of maltreatment, not only in schools but in jobs, in mortgage lending and in many other things."

~Thomas Sowell

Has the Real Estate Market Finally Bottomed Out?

Following this CD post from last Saturday "Has the Real Estate Market Finally Bottomed Out?" comes this WSJ article "Rise in Phoenix Housing Shows Path for Other Cities":

"As home prices continue to drop in most cities, a nascent real-estate rebound here holds lessons for the rest of the country. This sprawling desert metropolis was one of the hardest hit housing markets during the bust. Phoenix home prices declined 55% from 2006 through the end of 2011, and Arizona's foreclosure rate jumped to No. 3 in the nation in 2009. Hundreds of thousands of homeowners are underwater, meaning they owe more than their homes are worth.

"Now real-estate economists across the country are studying an early but surprisingly broad Phoenix turnaround. The sharp drop in home prices has brought new buyers into the market. Unlike other markets where housing recoveries have been snuffed out by big overhangs of homes for sale and foreclosed properties, inventories are lean here.

"Phoenix has hit a bottom," says Thomas Lawler, an independent housing economist who was one of the first to warn six years ago that prices in overbuilt metros were poised to fall.

The nation's hard-hit housing markets face a tough act: engineering a housing recovery without traditional trade-up buyers, many of whom are either unwilling or unable to sell because of huge price declines.

Phoenix has found a viable formula. Low prices are igniting demand from first-time buyers and investors who are converting the homes to rentals. The local economy is on the upswing with several big employers like Amazon.com Inc. and Intel Corp. hiring again, which is further increasing demand for housing. And the region is benefiting from a surge of buyers from Canada who are using their favorable exchange rate to scoop up bargains in the desert."

How Housing Policy Caused the Financial Crisis

Reason.tv -- "AEI's Peter Wallison argues in the video above that the financial meltdown was largely a consequence of government housing policy that underwrote unsustainable economic activity. He draws heavily on the research of Fannie Mae's former chief credit officer, Edward Pinto (now at AEI), which found that federal housing agencies drastically underreported the number of high-risk mortgages on their books. According to Wallison and Pinto, there were about 28 million high-risk mortgages in the U.S. in 2008; roughly 70 percent of those mortgages were owned by government-sponsored enterprises such as Fannie Mae and Freddie Mac."

California Declares War on Raw Dairy Farmers

Natural News -- "65-year-old senior citizen James Stewart, a California farmer with no criminal history, was nearly tortured to death in the LA County jail this past week. He survived a "week of torturous Hell" at the hands of LA County jail keepers who subjected him to starvation, sleep deprivation, hypothermia, loss of blood circulation to extremities, verbal intimidation, involuntary medical testing and even subjected him to over 30 hours of raw biological sewage filth containing dangerous pathogens."

MP: What was his alleged criminal activity?  Selling fresh, unpasteurized raw milk.  Bail for "The Milk Man" was set at $1 million.  By comparison, bail for alleged child rapist Jerry Sandusky, former Penn State sports coach, was set at $100,000.

"NaturalNews is calling upon Amnesty International and the American Civil Liberties Union to intervene in this extraordinary violation of basic human rights. For the record, James Stewart has no criminal record and is a permaculture farmer and fresh food advocate. His "crime" consists entirely of arranging for the distribution of raw milk to customers who actually line up to access this nourishing food (people love it!)."

Meanwhile, Natural News is reporting separately that:

"France, on the other hand, has embraced the health benefits of raw milk. There, innovative dairy farmer Michel Cantaloube has created a raw milk vending machine (see photo above). The vending machine is a tastefully-designed kiosk that blends right into the urban setting, allowing it to be set up on a street corner on a French town or even a major metropolitan area."

MP: Isn't this backwards?  We always hear about France being an example of heavy-handed government bureaucracy and "European-style socialism," but that seems to more accurately describe California's approach in this case while France takes the "laissez-faire" approach. 

Update:  Great comment from morganovich, "Raw milk is illegal due to health fears but cigarettes, one of the biggest health risks in the country, are one of the most widely distributed products in the U.S.?"