Monday, May 04, 2009

Emerging Markets Soar 47.6% Since Early March

The MSCI Emerging Markets Index closed today above 700 for the first time since October 3, 2008 (see graph above). The MSCI Emerging Markets Index has advanced in 27 out of the last 38 trading sessions, and is up by 47.6% from its early March low, and 23.6% year-to-date.

Springtime for US Economy Could Start This Month

Trough of the US recession: May 2009?

If we refine the NBER weekly trough date to be the third week in the NBER trough month, then in four of the past five recessions the new claims peak leads the NBER weekly trough by a range of only four to six weeks, and in the fifth recession the new claims peak lags the NBER weekly trough by two weeks. Since new claims have recently reached a peak in the week ending 4 April 2009, it is tempting to conclude that the monthly trough of the US recession could come as early as the middle of May 2009 – a date earlier than most analysts appear to expect.

Bottom Line: My reasoning leads me to conclude that the ultimate NBER trough of the current business cycle is likely to occur in May or June 2009, substantially earlier than is currently predicted by many professional forecasters.

~Northwestern economist Bob Gordon, also a member of the NBER Business Cycle Dating Committee since 1978

Opposite of Pro? Con; What's Opposite of Progress?

A major lesson of Fan and Fred and the subprime fiasco is that no one benefits when we push families into homes they can't afford. Yet that's what Congress is doing once again as it relentlessly expands FHA lending with minimal oversight or taxpayer safeguards.

~Wall Street Journal staff editorial

Given the current housing crisis, there is wide support for measures to make it easier for homeowners to modify their mortgages. That is understandable. Nobody likes seeing the wave of foreclosures. Plus, mortgage modifications may help stabilize home values.

But in the rush to do something, Congress is showing a regrettable willingness to adopt constitutionally suspect legislation that runs roughshod over the Fifth Amendment of the Constitution, which prohibits the taking of private property without just compensation.

~Wall Street Journal Editorial by Eric Brenner and Hamish Hume

If Non-Market Household Production Has Increased, Official GDP Stats Overstate Economic Contraction

Home construction is way down in the United States, but home production — work to produce goods and services for our own consumption — is way up. As people forgo expensive restaurant meals, they spend more time cooking at home. A Time Magazine poll reports that individuals are doing more housework and home repairs. Many Americans, famously including Michelle Obama, are planting vegetable gardens. Even some urbanites are raising chickens in their backyards.

Nancy Folbre, writing in the NY Times Economix blog, makes a good point: Adjusted for the increase in household production over the last six months or longer, the -6% contractions in real GDP over the last two quarters might overstate the severity of the contraction. That is, household production (cooking at home, home repairs, gardening, etc.) is NOT counted as part of official GDP output statistics because it is not market-based production. To the extent that Americans have increased household production in response to the economic slowdown, the BEA's official GDP statistics have overstated the true amount of economic contraction.

The 18.9% Two-Month Return for the World Stock Market (March and April) Is the Highest Since 1986

The MSCI World Stock Market Index (data available here) closed on Friday at close to a four-month high, and is up by 30% from the March 9 low.

The two-month return in March and April of 18.9% is the highest two-month return for the World Stock Market Index in more than two decades, since 1986 (19.2% two-month return for Jan.-March), and the third highest two-month return in history (the 24% two-month return through February 1975 was the highest in the history of the MSCI World Index, back to 1969).

Markets in Everything. Or Not.

This is the end of the line for Encarta. Microsoft recently announced that sales would soon cease and that the Encarta Web site, supported by advertising, would be shut down later this year.

It’s hard to look at the end of the Encarta experiment without the free and much larger Wikipedia springing immediately to mind. But Encarta arguably would have failed even without that competition. The Google-indexed Web forms a virtual encyclopedia that Encarta never had a chance of competing against.

~NY Times

Creative Destruction

Bartering Surges in Russia: 3 to 5% of Total Sales

A year ago, Russia seemed to be sloshing around in money. Now it's in the grip of a liquidity crisis, and individuals and companies are looking to another way to procure what they need - bartering. This direct exchange of goods and services is rising in popularity in Russia.

Thousands of barter offers can be found on the internet. And the items being put up for exchange give an idea of just how tough times are for some: a cottage for a car, furniture for a laptop computer, a pair of rubber boots for a box of chocolates, even retail discount cards for men's socks or baby food.

And it's not just individuals going online to barter; companies, large and small, are offering to exchange everything from apartments to building products to keep business ticking along, or to even stay in business.

Link and radio report (audio).

HT: Greg Allar

Sunday, May 03, 2009

Alcohol Consumption Map

Click to enlarge.

English Word-Origins Pie Chart


Jack F. Kemp (July 13, 1935 – May 2, 2009), RIP

Jack Kemp listing on Wikipedia

ECRI: Recession Likely Over By End of Summer

NEW YORK, April 30 (Reuters) - The longest U.S. recession in a half century will probably end before the summer is out, the Economic Cycle Research Institute said on Thursday.
The research group, whose leading indicators have a solid track record of predicting turns in the business cycle, said enough of its key gauges have turned upward to indicate with certainty that a recovery is coming.

Lakshman Achuthan of ECRI states: With the level of the Weekly Leading Index in an upswing for seven weeks now (see top chart above), an end to the U.S. recession is now in clear sight. -- The end of this recession -- the most severe downturn since World War II -- is finally in sight. This is the clear message from Economic Cycle Research Institute's array of leading indices of the U.S. economy.

The "giant error of pessimism" is now rampant. This is why many will be blind to the light at the end of the tunnel that marks the exit from this recession. But to ECRI's array of objective leading indices, designed specifically to spot recessions and recoveries, the end of the recession is now in clear sight.

Pothole Repair Smackdown: KFC vs. PETA

CHATTANOOGA TIMES FREE PRESS --The ante went up Thursday in a battle over chicken-naming rights on city streets. People for the Ethical Treatment of Animals sent a letter Thursday morning to Mayor Ron Littlefield, saying the group would double the amount of a donation the city received from KFC Corp. to fix potholes on city streets.

KFC gave $3,000, and PETA is offering $6,000.

Community Colleges Challenge The Hierarchy

17 states now allow community colleges to offer bachelor's degrees:
NY TIMES -- Florida leads the way, with 14 community colleges authorized to offer bachelor’s degrees, and 12 already doing so, in fields as varied as fire safety management and veterinary technology. But nationwide, 17 states, including Nevada, Texas and Washington, have allowed community colleges to award associate’s and bachelor’s degrees, and in some, the community colleges have become four-year institutions (see map above). Others states are considering community college baccalaureates.

In most cases, the expanding community colleges argue that they are fulfilling a need, providing four-year degrees to working people who often lack the money or the time to travel to a university. But some of those universities are fighting back, saying the community colleges are involved in “mission creep” that may distract them from their traditional mission and lead to watered-down bachelor’s degrees.

And here's another trend in higher education: "
Squeeze College Into 3 Years."

Saturday, May 02, 2009

Wall Street 2: Gordon Gekko Is Coming Back

LOS ANGELES Michael Douglas and Oliver Stone are back together again with a sequel to their 1987 hit "Wall Street." Douglas is reprising his role as Gordon Gekko and Stone is on board again to direct the sequel, which for now has the working title "Wall Street 2," said 20th Century Fox spokesman Gregg Brilliant. Brilliant said the project is timely and relevant given the state of the world.

Gas is Cheaper Today Than the 1920s, 1930s, 1940s, 1950s, 1960s, 1970s and First Half of 1980s

The chart above shows the real price of gasoline (in 2008 dollars), annually from 1919 to 2009 using data from the Energy Information Administration (data here). For 2009, the average gas price from January to April was $1.93 per gallon, which is equal to or lower than the average price of gas in every year since 1919, except for 1973 ($1.88) and the 18-year period from 1986 to 2003 (see shaded areas above).

In other words, during 72% of the years since 1919 (72 years out of 91), the real price of gasoline was higher than the average price so far in 2009. Compared to the real retail price today, gas was more expensive in the decades of the 1920s, 1930s, 1940s, 1950s, 1960s, 1970s (except for one year), and the first half of the 1980s.

Is There A Manufacturing Rebound In the Works?

NEW YORK ( -- A key measure of manufacturing activity rose for the fourth straight month in April, suggesting the sector may be stabilizing even though the indicator has been at the contraction level for 15 months in a row, a purchasing management group said Friday.

The Tempe, Ariz.-based Institute for Supply Management said its manufacturing index rose to a reading of 40.1 in April from 36.3 in March (see chart above, data here). A reading below 50 indicates manufacturing activity is shrinking. Economists had forecast a reading of 38.4, according to consensus estimates gathered by

"The decline in the manufacturing sector continues to moderate," said Norbert Ore, chair of the ISM's survey committee, in a statement. "This is definitely a good start for the second quarter."

The index also showed that new orders and production increased in April compared with March.

According to the ISM:

A PMI in excess of 41.2%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates contraction in both the overall economy and the manufacturing sector. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through April (37%) corresponds to a 1.3 percent decrease in real GD. In addition, if the PMI for April (40.1%) is annualized, it corresponds to a 0.3% decrease in real GDP annually."

MP: Assuming that the PMI continues to increase in May and June from the 40.1 April reading, there is a good chance that second quarter real GDP will be positive, or at least very close to zero. Also, the 7.2 percentage point increase in the PMI from the December bottom is the largest four-month increase in the index since January 2004.

As Larry Kudlow pointed out last night on "The Kudlow Report," the March index for New Orders (47.2) is now almost back to the level of 50 that would indicate an expansion manufacturing activity (see chart above). Further, the 19.1 percent increase in the New Order Index from Dec. to April is the largest 4-month increase in the index in more than 7 years (since March 2002), and the 14.1 percent increase in the Production Index over the same period is the greatest 4-month increase since February 2002.

Friday, May 01, 2009

Academic Earth Receives 1 Million Visits in 3 Mos.

A few months back I posted on Academic Earth, a website that features thousands of video lectures from the world's top scholars at some of the top universities (Harvard, MIT, Yale, Princeton, Stanford, etc.). Academic Earth now reports that:

Apr 29, 2009 -- Academic Earth, a portal for educational video that hosts full courses and guest lectures from leading universities, announced Wednesday that it received more than 1 million visits in the three months since it opened up its public beta. More than half of all visitors came from outside of the United States, representing a total of 213 countries.

"Our goal in founding Academic Earth was to make educational resources from leading universities more accessible to people around the globe," said founder Richard Ludlow, "we've been thrilled to see the site experience such rapid growth, especially from international users."

The site's visitors have been drawn to content in a wide variety of fields. The top 10 most visited lectures include Princeton's Alan Blinder speaking on the Origins of the Financial Mess, MIT's Walter Lewin's opening lecture to his introductory Physics course, Yale Professor Shelly Kagan discussing the philosophy of death, and even Berkeley's Alan Feng teaching strategy for the popular computer game Starcraft.

As would be expected in this economic environment, many visitors have made use of the site's resources in fields related to job skills; the top 5 most viewed subjects have been Computer Science, Entrepreneurship, Economics, Mathematics, and Engineering.

Consumer Confidence Soars in April

NEW YORK (Reuters) - U.S. consumers felt more confident about the economy last month than at any time since the September failure of Lehman Brothers that pushed global banking to the brink of collapse, a survey showed today. The Reuters/University of Michigan Surveys of Consumers said its final index of confidence climbed to 65.1 in April from 57.3 in March. That was the highest since September 2008 and the biggest one-month increase since October 2006.

The April reading also marked the first yearly increase since July 2007. Economists polled by Reuters had expected a lower final reading of 61.9 for April.

The index of current economic conditions rose to 68.3 last month from 63.3 in March, the best reading in four months. The index of consumer expectations climbed to 63.1 from 53.5, also the highest since September of 2008.

"The improvement was concentrated in expectations for the future, especially the longer-term outlook for the economy," said Richard Curtin, the director of the survey.

Life Expectancy v. Real GDP Per Capita, 1800-2007

Click on the chart above (and then click "Play") to see an amazing video chart from Gapminder showing year-by-year values for: a) life expectancy and b) real GDP per capita from 1800 to 2007 in various countries around the world. For example, in 1800 life expectancy at birth in the U.S. was 39 years and per-capita real GDP was $1,343, compared to 40 years and $2,280 in the UK, and 25 years and $467 in India.

By 2007, life expectancy in the U.S. was 78 years and per-capita GDP was $42,952. For the UK, it was 79 years and $33,203 and for India 65 years and $2,452.

There is No Gender Pay Gap in the UK: Having Children Is Decisive Factor, Not Being a Woman

UK Telegraph -- Harriet Harman claims that women earn on average 22.6% less per hour than men and takes it for granted that this difference is the result of discrimination against women by men. And yet the Government's own figures support no such conclusion.

Three official surveys are used by the Office for National Statistics (ONS): a survey of employers called ASHE (the annual survey of hours and earnings), a survey of households (the Labour Force Survey) and the panel dataset of the New Earnings Survey, which provides information from 1975 to 2006.

According to ASHE, in 2007 a gender pay gap does not open up until women reach about 30 years of age. From ages 18-29 there is hardly any difference and, according to the Labour Force Survey (LFS), women aged 22-29 are paid on average slightly more per hour than men. As the ONS concludes, having children is the decisive factor, not being a woman.

Historical data confirm this conclusion. Based on the New Earnings Survey panel data, in 1975 there was a pay gap from the age of 18 onwards, but in 2006 no such gap existed until age 34. Why? In 1975 women tended to have children in their 20s and by 2006 it was more common to have them in their 30s. As the average age of child-rearing increased so too did the age at which the pay gap kicked in.

The truth is that the vital difference is not between men and women but between women with dependent children and everyone else, whether male or female. The hourly rate of pay for women who are neither married nor cohabiting is slightly higher than for men in the same situation. For men and women who are married or cohabiting the hourly pay gap is 14.5% and the gap widens with the number of children. Women with one dependent child earn on average 12.3% less than men and with four or more dependent children 35.5% less.

Quite simply the Government's emphasis on the gender pay gap of 22.6% is an abuse of official statistics. And to infer that the difference in the average hourly rate is the result of discrimination is an abuse of logic. When women without dependent children compete head to head with men in the same situation their hourly rate is higher. Most women today work throughout their 20s and find that success is the result of being good at something. Employers are looking for capable people whether male or female.

Women today don't need government quotas. They are doing fine on their own. They want to be judged on their merits, not patronised by the old generation of 1970s quota feminists like Harriet Harman.

MP: Labor market studies in the U.S. have also found that motherhood and marriage explain much more of the pay gap than sex discrimination. For example, a 2005 NBER study concludes that:

"There is no gender gap in wages among men and women with similar family roles. Comparing the wage gap between women and men ages 35-43 who have never married and never had a child, we find a small observed gap in favor of women, which becomes insignificant after accounting for differences in skills and job and workplace characteristics."

Swimming in Nat Gas, Prices Hit 7-Year Lows

Supply is up.

Prices are down 75% from the 2008 peak.
WSJ/CADDO PARISH, La. -- A massive natural-gas discovery here in northern Louisiana heralds a big shift in the nation's energy landscape. After an era of declining production, the U.S. is now swimming in natural gas.

Even conservative estimates suggest the Louisiana discovery -- known as the Haynesville Shale, for the dense rock formation that contains the gas -- could hold some 200 trillion cubic feet of natural gas. That's the equivalent of 33 billion barrels of oil, or 18 years' worth of current U.S. oil production. Some industry executives think the field could be several times that size.

Huge new fields also have been found in Texas, Arkansas and Pennsylvania. One industry-backed study estimates the U.S. has more than 2,200 trillion cubic feet of gas waiting to be pumped, enough to satisfy nearly 100 years of current U.S. natural-gas demand.

The discoveries have spurred energy experts and policy makers to start looking to natural gas in their pursuit of a wide range of goals: easing the impact of energy-price spikes, reducing dependence on foreign oil, lowering "greenhouse gas" emissions and speeding the transition to renewable fuels.

Just three years ago, the conventional wisdom was that U.S. natural-gas production was facing permanent decline. U.S. policy makers were resigned to the idea that the country would have to rely more on foreign imports to supply the fuel that heats half of American homes, generates one-fifth of the nation's electricity, and is a key component in plastics, chemicals and fertilizer.

But new technologies and a drilling boom have helped production rise 11% in the past two years (see top chart above, data here). Now there's a glut, which has driven prices down to a six-year low (see bottom chart above) and prompted producers to temporarily cut back drilling and search for new demand.

The natural-gas discoveries come as oil has become harder to find and more expensive to produce. The U.S. is increasingly reliant on supplies imported from the Middle East and other politically unstable regions. In contrast, 98% of the natural gas consumed in the U.S. is produced in North America.

Emerging Markets Jump 39.5% Since Early March

The MSCI Emerging Markets Index closed yesterday at its highest level since Oct. 14, 2008 (see graph above), and is heading for its seventh-consecutive weekly gain. The MSCI Emerging Markets Index has advanced in 27 out of the last 38 trading sessions, and is up by 39.5% from its early March low, and 16.9% year-to-date.

Small WV Bank Loses $750,000 Due to TARP And Pays Treasury 60% Annual Interest for 6-Week Loan

The Troubled Asset Relief Program (TARP) was crafted at the outset of America's economic crisis by people under a great deal of stress, and probably without much sleep. It's had some unexpected consequences for the banks that borrowed money in the bailout.

Take the case of Centra Bank, a relatively small institution in West Virginia. Centra accepted a $15 million loan from the government and promptly paid it back. But that money came with strings attached, and over the past couple of weeks, Centra executives have realized they lost the better part of $1 million in their dance with TARP.

Here are some of the facts:

To protect taxpayers, warrants are typically part of TARP loan packages, and for Centra to get $15 million, the government forced Centra to sell preferred Centra stock worth $750,000 to the Treasury for $750. When the bank paid back the $15 million loan after six weeks, Centra Bank President Douglas Leech figured the bank would just return the $750 to Treasury.

But Treasury told Centra that to exit the TARP program, the bank would have to wire the full $750,000, plus interest.

Even though the bank had held the money for only six weeks, Centra had to pay the equivalent of a 60% annual interest rate on it. If Centra had stayed in TARP longer, the money would have been a cheap loan. But exiting early came with a stiff penalty. For Centra Bank, TARP backfired. It was supposed to give banks extra capital. Instead, it lost $750,000.

Here's the full NPR story.

MP: Senator Dick Durbin (D-Illinois) has introduced a bill called “Protecting Consumers from Unreasonable Credit Rates Act,” which proposes a federally regulated maximum interest rate of 36%. Perhaps he would consider amending it to also protect small banks like Centra receiving TARP funding from paying more than 36%?

Thursday, April 30, 2009

Coin Scalping? Buffalo Nickel Sells for $965 on Ebay

The 1913 S Buffalo Nickel ("Type 2" Near Gem BU++/Gem BU) pictured above just sold on Ebay for $965.

Face Value: 5¢ (Five cents, see top photo)

Market Value: $965

Question #1: Isn't that "coin scalping?, i.e. selling a coin above its face value?"

Question #2: What's the difference between selling a concert ticket above face value and selling a coin above face value? Why should one be illegal and one be legal?

Unemployment Rate for PhD Economists = 0%

Economics has long been called the dismal science. The general economic outlook today is indeed dismal, but that doesn't mean job prospects in the field are. "There is no unemployment among Ph.D.s in economics," declares John Siegfried, a Vanderbilt University professor.

Just do the math, and you'll see why: In the current academic year, the American Economics Association has listed approximately 2,200 job openings worldwide—but U.S. universities will grant only 950 Ph.D.s in economics.

Universities themselves may cut back, but economists remain in demand in government, business, and nonprofits and as consultants or policy analysts. "Depending on the program, about half the graduates stay in academics, and the other half go into the private sector, government, or places like the World Bank or International Monetary Fund," says William Collins, director of graduate studies in economics at Vanderbilt.

Some of the most famous economics Ph.D.s straddle both worlds; think of Fed Chairman Ben Bernanke, New York Times columnist and Nobel Prize winner Paul Krugman, and Obama advisers Christina Romer (who will chair the White House Council of Economic Advisers) and Laura D'Andrea Tyson.

~US News and World Report article "For Economists, a Moment in the Sun"

Economics Ph.D. program rankings

HT: Tom Hemphill

Green Shoot: Restaurant Activity's Up For 3 Months

(Washington, D.C.) -- The outlook for the restaurant industry improved in March, as the National Restaurant Association’s comprehensive index of restaurant activity rose for the third consecutive month. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 97.7 in March, up 0.2% from February and 1.3% during the last three months (see chart above).

“Although the RPI remained below 100 for the 17th consecutive month, which signals contraction, there are clear signs of improvement,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Restaurant operators reported a positive six-month economic outlook for the first time in 18 months, and capital spending plans rose to a 9-month high.”

New Dow Jones Economic Sentiment Indicator

NEW YORK, April 30, 2009A unique new monthly economic indicator introduced today by Dow Jones offers what could be an early signal that the economy may be lifting off its low point but any recovery remains very tentative.

The Dow Jones Economic Sentiment Indicator (ESI) edged higher in April to 27.6, up from 26.3 in March. The ESI aims to predict the health of the U.S. economy by analyzing the coverage of 15 major daily newspapers in the U.S. It uses a numerical scale from 0 to 100 to express the balance of sentiment in articles about the economy.

“The green shoots of recovery may be making an appearance,” Dow Jones Newswires “Money Talks” columnist Alen Mattich said, “but they are as yet very small and very pale."

The ESI represents one of the most comprehensive and far-reaching examinations of media coverage as an economic indicator. The ESI has been back-tested to 1990, allowing a detailed retrospective look at the indicator’s propensity for anticipating changes in the economy. This historical analysis of the series shows that the ESI clearly highlighted the risk that the U.S. economy was sliding into recession in 2001 and 2008 and suggests the indicator can help predict economic turning points as much as seven months in advance of other indicators.

“The Dow Jones Economic Sentiment Indicator represents a valuable new tool for measuring and anticipating key turning points in the economy,” Clare Hart, President of Dow Jones Enterprise Media Group, said. “And even though it is being released for the first time today, the ESI’s ability to anticipate those turning points is supported by nearly 20 years worth of data.”

Clarification on Moderating Comments

A commenter writes ".....with Mark running nanny patrol with comments...."

Let me clarify:

Carpe Diem has been subject to several major spam attacks recently, where somebody posts comments with advertising links on hundreds of older posts at a time. On several occasions in the last few weeks, I had to spend the first 30 minutes of the day removing all of the spam comments. Therefore, I changed the Blogger comment setting to allow me to moderate comments on any post older than 5 days, since most of the spam attacks were on older posts. That seemed to take care of the spam attacks for now, and I just changed the moderation to 10 days for now, to allow for some ongoing, unmoderated discussion that sometimes takes place on popular posts.

So I wasn't intending to be running nanny patrol with comments, but was forced into that situation because of several major spam attacks. I'll fine-tune this as necessary, and have only rejected comments with advertising during the forced "nanny patrol" period. Comments within 10 days of a post are currently not moderated at all.

Don't Make America More Like France

HT: Dan Mitchell

Chart of the Day:Retirement Age v. Life Expectancy

The chart above displays the decreasing median retirement age for men (data from BLS) over the last half century, from almost 67 years in 1950 to less than 62 years by 2005, a decrease of more than 5 years. During the same period, male life expectancy has increased significantly by almost 10 years, from 65.47 years in 1950 to 75.2 years in 2005 (data from CDC). As a result of those two trends, the average expected time in retirement for men has increased from 0 in 1950 to 13.5 years in 2005.


1. It's only been in the last 50 years or so that the average male lived long enough to enjoy any time in retirement. For all of human history before the 1950s, the average male worked his entire life and died before reaching retirement age. When it comes to expected years in retirement, there has never been a better time to be alive.

2. The Social Security system was designed in the 1930s when the average male wouldn't ever collect any benefits.

3. Given the recent performance of the stock market, the median retirement age may increase.

Did Jobless Claims Peak in Early April?

James Hamilton (4/9/2009): If subsequent data confirm that the 4-week average of initial claims did indeed reach its peak in the number reported April 2, and if Robert Gordon's pattern holds up, the recovery that many of us had assumed would be quarters or perhaps even years away may instead have started by June.

James Hamilton (4/16/2009): If April 4 ultimately proves to be the peak for the entire year, and if this recession behaves like each of the previous 6 recessions, we could expect the NBER eventually to declare that the economic recovery began within 6 weeks of today.

-- "The past few weeks' claims data are beginning to look increasingly like a peak," wrote Ian Shepherdson, economist at High Frequency Economics, in a research note.

Note: The chart above is based on jobless claims data through today's release, which reported the third consecutive monthly decline in the 4-week moving average.

2.3% Real Disposable Income Growth in March

From Table 10 in today's BEA report on Personal Income: Real disposable income increased 2.3% in March compared to March last year, following increases of 2.8% in January and 2.4% in February (see chart above).

This is the sixth consecutive month of positive growth in real personal income compared to the same month in the previous year, following negative growth in August and September 2008. The 2.3% increase in March real disposable income is equal to the 2.3% average over the last four years.

Fuel Efficiency Doesn't Lower Demand, It Raises It

It seems intuitive: Increasing the fuel efficiency of automobiles - or anything else that runs on gas - should lower the demand for oil.

It was with precisely that expectation that Congress enacted the Corporate Average Fuel Economy (CAFE) standards in 1975, following the Arab oil embargo. At the time, US oil imports amounted to a little more than one-third of consumption. Today we import two-thirds. After more than three decades of CAFE standards, heightened environmental awareness, and steady improvements in fuel efficiency and engine technology, America's demand for oil is greater than ever. In 1975, highway fuel consumption amounted to 109 billion gallons, according to the Federal Highway Administration. By 2006 it had climbed to 175 billion.

"It seems obvious that rising efficiency in cars, furnaces, and lawn mowers should, in the aggregate, significantly curb demand for energy," write Peter Huber and Mark Mills in "The Bottomless Well," their perceptive 2005 book on the supply, demand, and pricing of energy. "Sad to say, however . . . efficiency doesn't lower demand, it raises it."

Why? Because improvements in fuel economy effectively make fuel less expensive, and when costs fall, demand tends to rise. As driving has grown cheaper in recent decades, people have done more of it - choosing to drive to work instead of taking the bus, for example, or buying a second car, or moving to a house with a longer commute, or sending the kids to college with cars of their own. Between 1983 and 2001, data from the Energy Information Administration show, the number of annual vehicle-miles driven by the average American household rose from 16,800 vehicle-miles to more than 23,000.

"Efficiency may curtail demand in the short term, for the specific task at hand," Huber and Mills acknowledge. "But its long-term impact is just the opposite. When steam-powered plants, jet turbines, car engines, light bulbs, electric motors, air conditioners, and computers were much less efficient than today, they also consumed much less energy. The more efficient they grew, the more of them we built, and the more we used them - and the more energy they consumed overall."

~Jeff Jacoby, in the Boston Globe,
The Fuel-Efficiency Paradox

Wednesday, April 29, 2009

Homebuilders Index Up By 67.4% Since Mid-March

After several years of punishment, the U.S. homebuilding industry has begun to show some glimmers of hope. Earlier this month, The National Association of Home Builders reported its confidence index to be at its highest level since October. This optimism has pushed shares of the SPDR S&P Homebuilders ETF (NYSE: XHB) 18.3% higher during the past 4 weeks. Record-low interest rates and an $8,000 tax credit for new home buyers have been key factors to the XHB rebound.

MP: Since the early March low, the SPDR S&P Homebuilders Index is up by 67.4%, and over the last three months it's up by 30% vs. 0% for the Dow Jones average (see chart above, click to enlarge).

NY Yanks: Too Greedy to Outsmart Ticket Scalpers

The Yankees decided when they opened their new ballpark, that they would outsmart the scalpers and just raise ticket prices to levels where the tickets had normally sold on the secondary market in previous years. It seemed pretty smart at the time and then the first 6 games happened and the seats were glaringly empty at new Yankee Stadium. Now the Yankees have announced that they are going to go ahead and lower some prices.

The Yankees went ahead and priced their tickets too far up the scale and killed the demand across the board. They killed the demand for the primary market, and they took all the profits away from players in the secondary market like brokers and scalpers. While that might seem like a good thing, it creates embarrassing television broadcasts with empty seats.

Unfortunately for them, the Yankees have endured an embarrassing false start by being too greedy.

MP: Isn't it usually the ticket scalpers who are accused of being too greedy....

Goods-Producing Sector Fell Below 19% in 2008

In a previous CD post, I suggested that "Since fewer than 10% of all U.S. jobs are now in the manufacturing sector, should we continue to rely on industrial production as a key economic variable, when the manufacturing share of overall employment continues to decline to record low levels?"

The chart above using annual GDP data by sector from the BEA shows the downward trend in the private goods-producing sector, from 40% in 1947 to less than 19% in 2008. More reason that the importance of industrial production as an economic indicator has been declining over time. (Note: The BEA defines these two sectors as "private goods-producing" and "private services-producing," with the remaining percentage in the non-private or government sector.)

See related WSJ article "Nation’s Goods-Producing Sector Continues to Shrink"

Housing Affordability Falls For Second Straight Month Due to Rising Home Prices in Feb. and Mar.

The National Association of Realtors released its monthly Housing Affordability Index today, showing that the index fell in March to 166.7 from 174.4 in February, and from 176.9 in January (historical high), but is still 43 points above the 123.7 index average since 1989 (see chart above).

Housing affordability is determined by three variables: mortgage rates, median family income and median home prices. For the first three months of 2009, both mortgage rates (5.16% average) and median family income ($61,185 average) have held fairly steady, but the median home price has increased in each of the last two months from $164,200 in January to $167,900 in February (2.25% increase) and $174,900 in March (4.2% increase).

This two consecutive month increase in median home prices follows seven straight months of price declines (July 2008 through January 2009), suggesting that the national housing market may have reached a bottom in early 2009?

Markets in Everything: Stylin' Flu Masks

Markets in Everything: Zillow iPhone Ap

Imagine strolling through your neighborhood and, with a glance at your iPhone, finding out instantly how much just about any home you walk by last sold for. What if your iPhone could also display your location on a map that pinpoints nearby homes for sale and any that have recently changed hands? That's the promise of the new location-based iPhone application unveiled today by property valuation and listings giant Zillow.

Users can pull up details on just about any home they are interested in -- not just those that are for sale. "Basically what we've done is put the power of Zillow into the palm of your hand," Zillow COO Spencer Rascoff said. "Pushing the baby stroller around your neighborhood will never be the same."


12 Reasons To Be Economically Optimistic


One Bright Spot: Consumer Spending Rebounds

The economy contracted at a 6.1% annual rate in the first quarter, according to today's BEA report, which was worse than the 4.6% decrease in real GDP expected by economists. The one bright spot in today's report was the rebound in Personal Consumption Expenditures during the first quarter - consumer spending grew at 2.2% during the first quarter (see graph above) following two quarters of negative growth (-4.3% in 2008:Q4 and -3.9% in 2008:Q3), and was just slightly below the 2.27% average growth since 2001.

REUTERS -- There were some bright spots in the report. Consumer spending, which accounts for over two-thirds of U.S. economic activity, rose 2.2%, after collapsing in the second half of last year. Consumer spending was boosted by a 9.4% jump in purchases of durable goods, the first advance after four quarters of decline.

WSJ -- GDP acts as a scoreboard for the economy by measuring all goods and services produced. Its biggest component is consumer spending, which accounts for about 70% of GDP. First-quarter spending increased 2.2%, after dropping 4.3% in the fourth quarter.

Tuesday, April 28, 2009

Strongest Two-Month Gain in History for Fed Index

Manufacturing activity in the central Atlantic region contracted at a markedly diminished pace in April, according to the Richmond Fed’s latest survey. Our broadest indicators of overall activity—shipments, new orders and employment—remained in negative territory but the rate of decline moderated considerably from our last report. Evidence of diminished weakness was also reflected in all other indicators. District contacts reported that orders backlogs and vendor delivery times remained negative but improved from March’s readings, while capacity utilization was virtually unchanged. In addition, manufacturers reported somewhat slower growth in inventories.

MP: The chart above (data here) shows the Richmond Fed's monthly manufacturing index back to 1999. The 42-point improvement from February to April 2009 is the largest two month increase in the history of the Richmond's Fed's manufacturing index, going back to 1994.

HT: Scott Grannis' post Richmond Fed Survey Bounces

California Statewide Median Home Price in March Shows First Monthly Increase Since August 2007

LOS ANGELES (April 27)Home sales increased 63.8% in March in California compared with the same period a year ago, while the median price of an existing home declined 39%, the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.) reported (see chart above).

The March sales figure of 522,980 homes indicates that the market continues to be very active,” said C.A.R. President James Liptak. “All of the regions in the state experienced increases in month-to-month raw sales.”

Closed escrow sales of existing, single-family detached homes in California totaled 522,980 in March at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR associations statewide. Statewide home resale activity increased 63.8% from the revised 319,290 sales pace recorded in March 2008.

The median price of an existing, single-family detached home in California during March 2009 was $253,040, a 39% decrease from the revised $414,520 median for March 2008.

The March 2009 median price rose 2.2% compared with February’s $247,590 median price. “The statewide median price showed the first monthly increase since August 2007, and has remained in the $250,000 range over the past three months,” said C.A.R.’s Chief Economist Leslie Appleton-Young. “A number of regions around the state also have registered monthly gains for one or more months since the beginning of this year. While these are welcome signs, it remains to be seen whether home prices have stabilized.

“While we still face continued weakness in the general economy and expect continued foreclosures, the increased incidence of multiple offers indicates that first-time home buyers and investors are responding to dramatically improved housing affordability. Low mortgage rates and house prices, coupled with the federal first-time home buyer tax credit, is having a definite impact on the California housing market,” Appleton-Young added.

Other highlights for March 2009 include:

C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in March 2009 was 5 months, compared with 12.2 months for the same period a year ago (see chart below). The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

The median number of days it took to sell a single-family home was 48.3 days in March 2009, compared with 56.8 days (revised) for the same period a year ago (see chart below).

MP: Markets are working, and a recovery is taking place in the California housing market.

Update: Top graph has been corrected.

Florida Home Sales Increase for 7th Straight Month

ORLANDO, Fla. – April 23, 2009 – Florida’s existing home sales increased in March, making it the seventh month in a row that sales activity demonstrated gains in the year-to-year comparison, according to the latest housing data released by the Florida Association of Realtors (FAR). March’s statewide sales also increased over the previous month’s sales level in both the existing home and existing condo markets.

Existing home sales rose 30% last month with a total of 13,085 homes sold statewide compared to 10,080 homes sold in March 2008, according to FAR (see chart above). Statewide existing home sales in March were 32.7% higher than February’s statewide sales.

Fifteen of Florida’s metropolitan statistical areas (MSAs) reported increased existing-home sales in March and 13 MSAs also showed gains in condo sales. It marks the ninth consecutive month that a majority of markets have reported increased sales.
Florida’s median sales price for existing homes last month was $141,300; a year ago, it was $201,700 for a 30 percent decrease (see chart above).

MP: Falling home prices, record-low
mortgage rates, and record-high housing affordability are all working together to fuel a real estate recovery in states like Florida and California. Seven consecutive months of increased year-to-year sales activity suggests that the Florida real estate market is way past its bottom, and is making a solid recovery and strong comeback. Markets are working.

New Study Shows Clear Negative Relationship Between Local/State Tax Burden and Econ. Growth

Arlington, Va. – U.S. metropolitan areas with lower taxes exhibit higher employment growth, faster population growth, and greater increases in real personal income than areas with a higher tax burden, concludes a new study released today by the National Foundation for American Policy (NFAP), an Arlington, Va.-based policy research group. The study, “Higher Taxes, Less Growth,” found that areas with higher taxes had lower employment growth, smaller personal income gains and slower growth of population.

“These findings are particularly relevant at a time when many states and cities are proposing to raise taxes to address short and long-term budget problems,” said Stuart Anderson, Executive Director of NFAP.

1. Employment growth between 2000-2006 was 54% higher in the 50 metropolitan areas with the lowest tax burden than in the 50 highest-tax metro areas (measuring the tax burden as state and local taxes as a percent of personal income in 1997 for all 381 metropolitan areas).

2. Real personal income growth was 80% higher between 2000 and 2006 in the 50 areas with the lowest state and local tax burden (as a percent of personal income in 1997) than in the 50 highest-tax metro areas (see chart above).

3. In the 50 lowest-tax areas, population growth at 8.6% (between 2000 and 2007) was more than three times higher than in high-tax metro areas (2.6%).

Conclusion: The results suggest a clear negative relationship between state and local tax burdens and local economic growth.

Pakistan Tops Emerging Markets for 3-Mo. Returns

The chart above (click to enlarge) displays the most recent 3-month returns for the emerging market stock markets (in local currency) vs. the USA (4.09%), according to data from MSCI Barra. Nineteen of the emerging market indexes are showing double-digit returns for the last three month period.

Markets In Everything: Ultrasound Smartphones

Looks like smartphones are getting even smarter. We can already access our email, GPS navigate and use a wide range of business document formats, making them an integral part of a business person’s day. Now doctors might soon be packing a smartphone alongside their stethoscopes. Computer engineers at Washington University in St. Louis have combined a smartphone with USB-based ultrasound probe technology to produce a mobile imaging device that fits in the palm.

The development team envisages the smartphones will become essential tools in ambulances and emergency rooms and hopefully prove vital in the developing countries, where there are insufficient trained medical staff. People in remote areas could be trained to gather data with the phones and send the information to a large medical facility where specialists can analyze the image and make a diagnosis. The technology could also provide army medics the means to quickly diagnose wounded soldiers and detect the location of shrapnel wounds.

To make it happen, the team is working at keeping the cost of the device low. A typical, portable ultrasound device can cost as much as USD$30,000, but some USB-based probes sell for less than $2,000. The team is aiming for a price of about $500. There was also a need to keep the device small, which advances in technology have enabled.

Monday, April 27, 2009

All Aboard the Federal Gravy Train: We're In The Midst of Largest Federal Gold Rush Since the 1960s

Federal spending is growing by leaps and bounds. The budget hit $3.9 trillion this year, double the level of spending just eight years ago. The government is also increasing the scope of its activities, intervening in many areas that used to be left to state and local governments, businesses, charities, and individuals.

By 2008, there were 1,804 different subsidy programs in the federal budget. Hundreds of programs were added this decade—ranging from a $62 billion prescription drug plan to a $1 million anti-drug education grant—and the recent stimulus bill added even more. We are in the midst of the largest federal gold rush since the 1960s.

~From the study "Number of Federal Subsidy Programs Tops 1,800," by Chris Edwards, Director of Tax Policy Studies, Cato Institute

Markets in Everything: Gangsta Baby Dolls

The blingin'-est kids in daycare!
Big Duece.


Yesterday's Necessities Become Today's Luxuries

Click to enlarge graphs.
In hard times, the Pew Research survey finds that many Americans are changing their minds about which everyday goods and services they consider essential and which ones they could live without. The survey also shows that "old-tech" household appliances have fared the worst in the public's reassessment of the line between luxury and necessity in their daily lives.

Of 12 items tested, six dropped significantly in the necessity rankings from 2006 to 2009, while the other six basically held their own. All of the "old-tech" household appliances on the list dropped in their necessity ratings. For example, the proportion of people who rate a clothes dryer as a necessity fell by 17 percentage points in the past three years. There are similar declines for the home air conditioner (16 points), the dishwasher (14 points) and the television set (12 points).

A few of the "middle-aged" household appliances and services also declined. The microwave, a kitchen staple since the late 1980s, is currently viewed as a necessity by less than half the public, a 21-point drop in the past three years. The proportion who rate cable and satellite television service as a necessity fell 10 percentage points since 2006, nearly matching the declining value of a television set.

In contrast, none of the newer information-era gadgets and services has fallen in Americans' assessment of what they absolutely need to have. Cell phones and home computers continue to be seen as a necessity by half of the public, unchanged from three years ago. High-speed Internet access is seen as a necessity by about three-in-ten adults, also unchanged from 2006. Two items that came onto the consumer scene in this decade -- iPods and flat-screen TVs -- are still seen as a necessity by a very small share of the public, but that share hasn't declined during the recession.

Finally, there's the automobile -- the ultimate survivor. It's been around for nearly a century, but in good times or bad, it retains its pride of place at the top of America's list of everyday necessities.

Brazil's Bovespa Index Reaches Six-Month High

BRASILIA, April 24 (Reuters) - Brazilian stocks rallied to their highest close in more than six months on Friday, as optimism about the world's largest economy boosted appetite for riskier assets and lifted the national currency.

Sao Paulo's main stock index, the Bovespa (^BVSP) rose 2.12% to 46,772 points -- its highest close since early October 2008 (see chart above). The index has gained nearly 25% so far this year, and almost 50% since the November bottom.

HT: Dennis Gartman, who writes in today's The Gartman Letter that "The world wants “stuff” and Brazil has “stuff” for sale."