Monday, May 11, 2009

Great Depression II? Not Even Close

Real GDP contracted annually by 8.6%, 6.4% and 13% (updated) in the first three years of the Great Depression, for a cumulative decrease of almost (updated ) 26% (see chart above). According to the Philadelphia Federal Reserve Survey of Professional Forecasters (released February 13, to be updated this Friday), real GDP will contract this year by -2.0 before increasing by 2.2% next year. Even if real GDP contracts by much more than 2% this year before returning to positive growth next year, it will be nothing close to the contraction in real GDP of the early 1930s.

Related: See guest Freakonomics post "This is Not Another Great Depression," which concludes: "We are experiencing pain now, but the problems of the Great Depression were several magnitudes greater."

Related: The White House is projecting that the nation's economy will shrink by 1.2% this year and increase by 3.2% next year. In addition, it projects that "by the end of this year," the economy will be growing at a 3.5% annual rate.

Great Depression II. Not.

Between 1931 and 1940, the MINIMUM monthly unemployment rate was 11% in July 1937, and the average jobless rate was 17.3% (see chart above). It seems very likely that the MAXIMUM unemployment during the current recession won't reach the MINIMUM of 11% during the Great Depression.

According to the Philadelphia Federal Reserve Survey of Professional Forecasters (
released February 13, new survey is due out this Friday), the average unemployment rate expected for 2009 is 8.4% and the average forecast for 2010 is 8.8%. Obviously these forecasts will be adjusted upward this Friday, but it still seems probable that the jobless rate in this recession won't even reach the minimum monthly rate of the 1930s, and certainly won't come anywhere close to the 17.3% average jobless rate during the Great Depression.

For a related analysis, see Freakonomics post "
This is Not Another Great Depression"

Note: Unemployment insurance didn't exist until 1935.

Low (High) Union = High (Low) Employment Growth

From 2003 to 2008, for example, aggregate private-sector employment grew by a healthy 10.4% in the 11 states in which fewer than 5% of private employees were under union
monopoly control as of 2003. In the 18 states with private-sector monopoly bargaining below the national average, but above 5%, employment grew by 6.1%. But in the 21 states with above average private-sector unionization, aggregate employment grew by just 3.5% -- roughly a third as much as in the lowest-union-density states.


Unionization = 10% Decline in Firm Value

From the NBER Working Paper "Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961-1999" by David Lee and Alexandre Mas (Princeton Univ.):

We estimate the effect of new unionization on firms' equity value over the 1961-1999 period using a newly assembled sample of National Labor Relations Board (NLRB) representation elections matched to stock market data. Our event-study analysis reveals substantial losses in market value following a union election victory – about a 10% decline, equivalent to about $40,500 per unionized worker. The evidence supporting this finding is compelling: we find that these firms’ average returns are quite close to the predicted returns every month leading up to the election, but at precisely at the time of the election, the actual and counterfactual returns diverge (see bottom chart above).

For example, in a March 1999 National Labor Relations Board (NLRB) representation election, workers at National Linen Service (NLS) Corp., a large linen supplier, voted by an over 2 to 1 margin to organize as a local chapter of the Union of Needletrades, Industrial, and Textile Employees (UNITE). The stock market response appeared to punish NLS in a severe, though perhaps not swift, fashion. Figure 1 (top chart above) shows the cumulative return of NLS’ stock for the two years prior to and following the election, as well as the cumulative return of a broad market index over the same period. Before the election, the returns for NLS and the market tracked each other quite closely. But immediately following the election, NLS began to lag. By March 2001, the price of NLS shares had fallen by 25%, while the broad market index had increased by 50%.

HT: Travis Walker (and Freakonomics)


Tech Trends

1. 60% of US Twitter users fail to return the following month.

One in five US households are now cellphone only.

3. Amazing HD video.


India now adds more cellphone connections than anyplace else, with 15.6 million in March alone.

Re-Emerging Markets Get Their Groove Back

WALL STREET JOURNAL -- As fears of a deepening global recession are pushed aside by expectations of recovery, investors have rediscovered their appetite for risk in places ranging from Brazil and China to Russia. Brazil's Bovespa stock index is up 75% since its October lows, and across the emerging-market world, stocks are up 50% since the beginning of March, according to the MSCI Emerging Markets index, which tracks 23 markets (see chart above).

Behind the optimism are signs the worst of the global slump may have passed, and that China's massive stimulus plan is kicking in, heralding a pickup in demand for commodities and agricultural products. Investors appear to be trying to get in early on a long-term bet: Emerging-market economies will get back into their grooves long before the U.S. or Europe shake off the global crisis.

Several emerging economies entered the crisis with better initial conditions and, as such, will likely maintain a better economic performance than most industrial countries going forward," says Mohamed El-Erian of Pacific Investment Management Co., manager of the world's biggest bond fund.

"I think it's an awareness of where the growth stories are coming from," says Jonathan Auerbach, managing director at international brokerage Auerbach Grayson. "We're about 12 months away from a genuine return to global growth, and it's going to be driven by the emerging markets."

Sunday, May 10, 2009

More US Workers Outsourcing Own Jobs Overseas

Click large Grey arrow in middle of the screen below.

More American Workers Outsourcing Own Jobs Overseas

USPS: Unconscionable Stamp Gouging?

WASHINGTONThe Governors of the U.S. Postal Service have approved new prices for mailing services, including a 2-cent increase in the price of a First-Class Mail stamp to 44 cents. Prices for mailing services are reviewed annually and adjusted each May. The new prices will go into effect Monday, May 11.

Over the last 90 years, the average retail price of gasoline has increased about 8.5 times, from 25.5 cents per gallon in 1919 to $2.16 per gallon in 2009, according to annual price data from the EIA. Over the same period, the price of a first-class stamp in the U.S. has increased 21X, from 2 cents in 1919 to 44 cents in 2009 (starting tomorrow), according to historical stamp price data available here.

The chart above compares stamp prices to gas prices using an index that is equal to 100 in 1919 for both series, and includes the CPI index from 1919-2009, also equal to 100 in 1919.

If stamp prices had increased over time at "only" the rate of gas prices, a first-class stamp would only cost only 17 cents today instead of 44 cents. If stamp prices had increased at the same rate as consumer prices in general, stamps today would cost about 25 cents.

When gas prices rose last summer, Rep. Bart Stupak (D.-MI) introduced "The Federal Price Gouging Prevention Act," which would make it a crime to "sell crude oil or gasoline at a price that is unconscionably excessive." Shouldn't we now investigate "unconscionably excessive stamp prices" of the postal monopoly?

Blogosphere: Great Depression vs. Green Shoots

"Great Depression"
" Green Shoots"
BlogPulse Trend Search allows you to create graphs that visually track "buzz" over time for certain key words, phrases or links in the blogosphere.

The charts above are for the term "Great Depression" and "Green Shoots" over the last six months.

Washington:The New Financial Capital of the World

New York, which until eight months ago was the financial capital of the world, is no longer even the financial capital of the United States. Washington is.

~George Will's latest column, "Upside-Down Economy"

Saturday, May 09, 2009

NY Fed Model Suggests Economic Recovery Has Started, and Recession Will End This Year

According to the New York Fed, "Research beginning in the late 1980s documents the empirical regularity that the slope of the yield curve is a reliable predictor of future real economic activity."

New York Fed just released its latest "Probability of U.S. Recession Predicted by Treasury Spread," with data through April 2009, and the Fed's recession probability forecast through April 2010 (see chart above, click to enlarge). The NY Fed's model uses the spread between 10-year and 3-month Treasury rates (currently at 2.77%) to calculate the probability of a recession in the United States twelve months ahead (see chart below of the Treasury spread).

The Fed's data show that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then to less than 10% for December 2008 and January 2009. Looking forward through 2009, the Fed's model shows a recession probability of only about 1% on average through the next 12 months, and below 1% by the end of the year (0.82% in December 2009). By April of 2010, the recession probability will be only 0.37%, close to the lowest level since mid-2005.

Further, the Treasury spread has been above 2% for the last 12 months, a pattern consistent with the economic recoveries following the last six recessions (see chart above).

Bottom Line: My reading of the New York Fed's Treasury spread model suggests that an economic recovery is probably already underway, and the Fed's model predicts the end of the recession in 2009.

4th Monthly Increase in Used Vehicle Value Index

MANHEIM CONSULTING -- April marked the fourth consecutive monthly increase in wholesale used vehicle prices on a mix, mileage, and seasonally adjusted basis. The Manheim Used Vehicle Value Index now stands at 106.6. That represents a year-over-year decline of 1.7%, but an increase of 8.8% since the beginning of the year.

This year's rise in wholesale pricing (and the strong conversion rate at auction) was initially driven by the steep falloff in new vehicle sales, which reduced the supply of trade-ins much more than the underlying demand for those units. Now, however, the stability in the used vehicle market appears to be more “despite of”, rather than “because of”, the weakness in the new vehicle market. As such, periodic setbacks in pricing may be experienced even though the supply/demand dynamics remain positive for used vehicle values.

From a previous report:

Some analysts have suggested that the rapid rise in wholesale used vehicle pricing is a precursor to an improvement in new vehicle sales and may even point to a recovery in the overall economy.

Aplia in the Washington Post

Greg Mankiw points to an article about economist Paul Romer and his interactive homework software Aplia in yesterday's Washington Post, written by Steven Pearlstein. I have used Aplia for the last several years in both economics and finance classes with great success. Here is an excerpt from the article:

Today, Aplia is used at more than 815 colleges by 170,000 students per term, with course offerings covering more than a dozen subjects (economics, finance, accounting, business law, statistics, taxation, philosophy,
Aplia website here). A quarter of all students enrolled in college economics classes work with Aplia.

Students seemed to like Aplia's engaging and easy-to-use software, as well as the feedback. Professors liked Aplia even more. It allowed them to leverage the grade-grubbing instincts of today's college students to get them to do homework -- but without having to spend countless hours reading and correcting the assignments. They also got reports from Aplia identifying which students were having the most trouble with the material and which concepts were stumping the class as a whole.

For me, however, what's really exciting about Aplia is that it finally holds out the possibility of bringing to higher education the same productivity revolution that has lowered costs and improved quality in almost every other industry over the past two decades.

By relieving instructors of the considerable burden of reviewing homework assignments, the technology makes it possible for universities to require professors to teach more students, either by increasing class sizes or the number of classes they teach. More important, it frees instructors to spend more time preparing for class, working with individual students and even doing their own research.

Note: For those unfamiliar with Aplia:

Founded in 2000 by economist and Stanford professor Paul Romer, Aplia is an educational technology company dedicated to improving learning by increasing student effort and engagement.

For students, Aplia offers a way to stay on top of coursework with regularly scheduled homework assignments. Interactive tools and content further increase engagement and understanding.

Aplia is a homework management and course management system integrated into one with a digital text, current event news articles, and math tutorials. The problem sets are interactive, auto-graded, give immediate feedback, and are written in the same language as the book. What's more, all of Aplia's materials are predicated on getting students better prepared and more engaged in the subject matter.

How to Save Endangered Tigers: Kill Them?

At this link you can watch John Stossel's full 20/20 segment "How to Save Endangered Tigers: Kill Them?"

Case Study: In 1967, the American alligator was listed as an endangered species (under a law that preceded the Endangered Species Act of 1973), meaning it was considered in danger of extinction throughout all or a significant portion of its range.

The creation of large, commercial alligator farms helped to save alligators. Alligator farming is a big and growing industry in Georgia, Florida, Texas and Louisiana. These states produce a combined annual total of some 45,000 alligator hides. Alligator hides bring good prices and hides in the 6 to 7 feet (1.8 to 2.1 m) range have sold for $300 each, though the price can fluctuate considerably from year to year. The market for alligator meat is growing and approximately 300,000 pounds (140,000 kg) of meat is produced annually.

Today, in just the state of Louisiana, there are 723,000 alligators on alligator farms, and biologists estimate Florida has 2 million wild alligators. In fact, there are so many wild alligators in Florida that state officials have lifted the ban on alligator hunting, and they now have an 11-week hunting season. The American alligator was removed from the endangered species list in 1987 after the U.S. Fish and Wildlife Service pronounced a complete recovery of the species.

Bottom Line: Private property rights, commercial farming, and the commercial sale of alligator meat and hides played a large role in the recovery of the American alligator. The same approach could help save tigers, elephants and rhinos, or any other endangered species.

Friday, May 08, 2009

Emerging-Markets Stocks Reach 7-Month High

May 8 (Bloomberg) -- Emerging-market stocks rose to the highest in seven months as stress tests indicated U.S. banks may plug their capital hole with private funds and fewer job losses in the U.S. signaled the worst of the global recession is over.

The MSCI Emerging Markets Index added 1.4% to 725.13, its highest level since Oct. 3.

MP: Since the March bottom, the Emerging Markets Index has increased by 52.6%, and is up by 28% since the first of the year.

New Car Affordability At Historical Record High

DALLAS/May 8, 2009 The purchase of an average-priced new vehicle took only 21.5 weeks of median family income in the first quarter 2009, according to Comerica Bank’s Auto Affordability Index. This reading is down 1.3 weeks from the prior quarter and is the lowest on record (index started in 1979). Median family income fell in the first quarter, but the total vehicle cost of buying and financing a new car fell more sharply than income, reflecting sharply falling interest rates on car loans. The total cost of buying an average-priced light vehicle fell to $26,000 in the first quarter, down $1,700 from the prior quarter.

MP: Just like falling home prices are helping the real estate market to recover and heal, the highest auto affordability in history should help the ailing auto industry to recover and heal.

April Household Employment Jumps by +120,000

It won't receive as much attention as the nonfarm payroll employment data (-563,000 jobs), but the more comprehensive measure of employment (household data) showed an increase of 120,000 jobs in April (see Tables A and A-1 in today's report) to 141,007,000. As the chart above shows, April marked the first monthly job gain in a year, and follows 11 consecutive months of job losses.

Update on the difference between payroll and household employment: "Both the payroll and household surveys are needed for a complete picture of the labor market. The payroll survey provides a highly reliable gauge of monthly change in nonfarm payroll employment. The household survey provides a broader picture of employment including agriculture and the self employed." Read more here from the BLS.

"Man-Cession" Worsens; Male (10%) - Female (7.6%) Jobless Rate Gap of 2.4% is Highest in History

According to today's BLS report (Table A-1, Household Data), the April unemployment rate for men was 10% vs. 7.6% for women, and the 2.4% male-female jobless rate gap is at an all-time historical high, exceeding the previous record difference of 2% in March 2009. In contrast, just a little more than one year ago in March 2008 the male-female jobless rate gap was only 0.20% (5.2% for males vs. 5% for females), and for most of 2006 and 2007 there was either no gap or a relatively small gap (in some months in 2006 the gap was in favor of men).

For men, the jobless rate jumped from 9.5% in March to 10.0% in April, compared to an increase for women from 7.5% to 7.6% from March to April. Therefore, almost all of the 0.40% overall increase in the April unemployment rate to 8.9% from 8.5% in March was due to an increase in male unemployment.

Banks and Housing Markets: Canada vs. U.S.

From the mid-2006 housing price peak in the U.S. (Case-Shiller Composite-20 Index, data here), home prices have fallen by about 30% (see chart above) through February 2009. From the mid-2008 peak in Canada (Teranet/National Bank of Canada National Composite Index, data here), prices have fallen by only 7.4% through February. Although Canada home prices may continue downward (along with U.S. home prices), it would appear so far that there was a much bigger housing bubble problem in the U.S. than in Canada.

Likewise, there was a much more significant banking crisis in the U.S. than in Canada, see bottom chart above of the S&P US Bank Index and the S&P Canada Bank Index, from January 2000 to May 2009 (data from
Global Financial Data, paid subscription required). Both bank indexes peaked about the same time in early 2007, but the U.S. bank index crashed by 80% through early 2009, compared to the 40% drop in Canada's bank index over the same period. Year-to-date, both bank indexes are up about 30%.

Nick Rowe, via Marginal Revolution, comes this list of why Canada's banks are special, or at least different enough from US banks to explain the differences above in the recent housing market and banking problems:

1. Canada has never had restrictions on interstate banking, so Canadian banks spread their assets and liabilities across Canada, and it doesn’t matter if a local housing market goes bust. (This was also a major difference during the Great Depression when about 10,000 banks failed in the U.S. vs. almost no bank failures in Canada.)

2. Canada never had Glass-Steagall restrictions separating commercial banking from investment banking, and the investment banks in Canada joined the retail banks some years ago.

3. Canada doesn't have mortgage interest deductibility for income taxes. So paying down your mortgage in Canada is a tax-free investment, and most people want to pay down their mortgages.

4. Except in Alberta, mortgages in Canada are fully recourse. You can’t just walk away from a negative equity home and hand the keys to the bank; the bank will come after you for the difference.

5. If a Canadian investor wishes to take some risk, the New York-based banks may be the most efficient means of doing that (added by Tyler Cowen).

Thursday, May 07, 2009

Harley-Davidson: +140%; Winnebago: +170%

The chart above (click to enlarge) shows the two-month returns for Harley-Davidson and Winnebago, compared to the S&P500 Index, from March 9 through today (May 7). The S&P500 Index is up by 35% since early March, but Harley Davidson is up by almost 140% (4 times the S&P500 return) and Winnebago is up by about 170% (almost 5 times the S&P500 return).

Bottom Line: If the stock prices of companies like Harley-Davidson and Winnebago selling luxury, discretionary items like $35,000 motorcycles (pictured above) and $140,000 RVs (see picture above) are rebounding by +100% over a two-month period, at 4-5 times the increase in the S&P500 Index, does that suggest that the recession must be over?

HT: Comment by LaDolceVita about Thor Industries.

April Retail Rebound: Wal-Mart +5%, Target +4.5%

May 7 (Bloomberg) -- Wal-Mart Stores, the world’s largest retailer, reported comparable-store sales for April that rose more than analysts expected. Revenue from U.S. stores open at least a year increased 5%, excluding gasoline sales, in the four weeks through May 1, the Bentonville, Arkansas-based company said today in a statement. That exceeded the 3% average estimate compiled by Retail Metrics Inc., a Swampscott, Massachusetts-based consulting firm.

U.S. store visits rose the most in seven months, spurred by demand in the grocery, health, home and entertainment categories, Wal-Mart said. Some consumers spent more freely on sporting goods and other discretionary merchandise after gasoline prices and payroll taxes dropped. The shift of Easter to April 12 from March 28 in 2008 also lifted sales.

Target Corp. announced Thursday that net retail sales for the four weeks ended May 2 were $4.45 billion, up 4.5% from the comparable period last year.

Minneapolis-based Target (NYSE: TGT) said first-quarter highlights included better-than-expected same-store sales and gross margins, favorable retail expense performance and credit card results that were in line with prior guidance. Target’s April results far exceeded those for the first two month’s of the company’s fiscal first quarter. Same-store sales were down 6.3% in March and 4.1% in February.

What About Adjusting for Population?

WASHINGTON (AP) -- The Labor Department reported Thursday that the number newly laid off workers applying for benefits dropped to 601,000 last week. That was far better than the rise to 635,000 claims that economists expected. But the total number of people receiving jobless benefits climbed to 6.35 million, a 14th straight record.

MP: There's one small problem with the bold statement above: The population of the U.S. has roughly doubled since the 1950s, so comparisons of today's unemployed (unadjusted) to past periods is meaningless without adjusting for the population. The chart above shows that the current number of unemployed (6.2 million average for April) is about 2% of the current U.S. population (estimated 306.56 million for April), which is still below the 2.12% level in 1975. So the claim of a 14th straight record for Americans receiving jobless benefits is not accurate, after adjusting for the size of the U.S. population.

Down With Facebook: Mind-Numbing Inanity

The reason to hate Facebook is because of the stultifying mind-numbing inanity of it all, the sheer boredom. If Facebook helps put together streakers with voyeurs, the streakers, for the most part, after shedding their trench coats, seem to be running around not with taut and tanned hard-bodies, but in stained granny panties with dark socks. They have a reality-show star's unquenchable thirst for broadcasting all the details of their lives, no matter how unexceptional those details are. They do so in the steady, Chinese-water-torture drip of status updates. The very fact that they are on the air (or rather, on Facebook) has convinced them that every facet of their life must be inherently interesting enough to alert everyone to its importance.

~Matt Labash, in The Weekly Standard via (Newmark's Door)

Save the Elephants, Buy Ivory, Eat Elephant Meat

The best way to save endangered species is to eat them?

John Stossel: International bans on the trade of rare animal parts (tiger organs, elephant tusks, rhino horns) have been about as successful as the international war on drugs. Why? Because wherever there is a demand strong enough, market forces overwhelm law enforcement. Terry Anderson of PERC, the Property and Environmental Resource Center, claims that governments have repeatedly failed when they tried to save animals by banning their sale -- it failed with the Colobus monkey in West Africa … with the alligator in China … and now, with the tiger in Asia.

It's quite the conceit that a few conservation groups think a government decree can change history, and get a billion plus people to change their habits. By contrast, does America have a shortage of chickens? No, because people own them and eat them. Allowing private owners to sell animals for food or tourism saved the rhino and the elephant in Africa, and the bison in America. It could save the tiger too, if environmental groups would drop their resistance.

Watch John Stossel's special "You Can't Even Talk About It" on 20/20 tomorrow night (10 p.m. ET) for the full report.

Jobless Claims Fall For The Fourth Straight Week to the Lowest Level Since Mid-February

WASHINGTON -- New U.S. claims for state unemployment benefits fell sharply last week, the fourth decline in five weeks, providing further evidence that the pace of layoffs has slowed after months of steep job cuts. Initial claims for state jobless benefits tumbled 34,000 to 601,000 in the week ended May 2, the Labor Department said in a weekly report Thursday. That's the lowest level since late January. Wall Street economists had expected a 4,000 rise, according to a Dow Jones Newswires survey.

The four-week average -- which aims to smooth volatility -- slid for a fourth-straight week, by 14,750 to 623,500, the lowest since mid-February (see chart above).

MP: On a monthly basis, there was a decline of 35,250 claims (four-week moving average) from early April to early May. Going back to 1987, there have only been 16 times when the monthly decline in jobless claims was greater, and 9 of those 16 times were towards the end of, or following, the 1990-1991 recession and the 2001 recession.

Monster Employment Index Rises 2 Points in April

April 2009 Index Highlights:

Index rises by two points reflecting slight seasonal increase in online job opportunities

• Year-over-year, the Index is now down 31 percent, indicating no major change in the annual pace of decline between March and April

• Accommodation/ food services and arts/entertainment industries witness gains suggesting increased demand for workers in the leisure and hospitality sector

• Online offerings for occupations in business and financial operations rise suggesting stabilization in the banking and broader financial services industry

• Online job opportunities rise in eight out of nine regions and 19 of the 28 major metro markets in April

Summary Overview

The Monster Employment Index rose slightly in April, adding two points, as several industries, occupations, and regions registered increased online job availability. Yearover-year, however, the Index was down 31 percent. The Monster Employment Index is a monthly gauge of U.S. online job demand based on a real-time review of millions of employer job opportunities culled from a large representative selection of corporate career Web sites and job boards, including Monster.

Wednesday, May 06, 2009

Market Volatility Falls To An 8-Month Low

From Ian Ayres at the Freakonomics Blog on December 24, 2008:

One of the most important but underreported financial indicators is the
CBOE’s Volatility Index (^VIX), which measures the market’s expectation of future volatility in stock prices. (The CBOE has written a nice technical paper describing how it is calculated here.) Traditionally, the annualized volatility of the S&P 500 has been 20%, but in both October and November the VIX reached an apocalyptic 80%. The huge drop in stock prices is bad, but it would be a lot better if the market thought that the major gyrations were mostly in our past. So the good news is that the volatility index has retreated to 45%.

Now, 45% is still more than twice what it “should” be. But it’s at least moving in the right direction. When it drops below 30%, it will be a strong indication that the market correction is complete and we’re back to business as usual.

MP: The
CBOE Volatility Index closed today at an 8-month low of 32.45%, the lowest level since mid-September 2008 (see chart above), and more than 48 points below the November 20 peak of 80.86. If Ian Ayres is correct, market volatility is within a few points of the 30% reading that will signal that the market correction is complete.

117% Gain in KBW Bank Index Since Early March

The KBW Bank Sector (^BKX) is a capitalization-weighted index composed of 24 geographically diverse stocks representing national money center banks and leading regional institutions, including Bank of America, Citigroup, Wells Fargo, etc. (see list here).

The bank index closed above 40 today for the first time since the first week of January, and jumped by 11.5% from yesterday's close, and 20.7% over the last week. From the March 6 bottom, KBW Bank Index has increased by 117%.

Wal-Mart's Generic Prescriptions Are Almost Free

BENTONVILLE, Ark., May 5, 2009 Today in Michigan Walmart announced a pilot program that will offer a 90-day supply of 300 generic prescriptions, each for $10 via free mail delivery. Beginning today, from Detroit to Grand Rapids to Alpena, Michiganders across the state will be able to take advantage of this new affordable pharmacy program from Walmart by calling 1-800-2REFILL. Additionally, Walmart’s free mail delivery program has no gimmicks, no memberships and no enrollment fees. This announcement signals Walmart’s commitment to help consumers save money on prescriptions regardless of whether or not they live close to a Walmart pharmacy location.

Dr. John Agwunobi, Walmart’s president of the health and wellness division said "Our $10 mail delivery prescription pilot program is a reflection of Walmart’s commitment to drive unnecessary costs out of the health care system so Americans can live healthier, better lives. Now regardless of whether consumers in Michigan have a Walmart pharmacy in their local community or not, we can help save them money.”

In addition to the 300 generic prescriptions for $10 each, Walmart’s free mail delivery program provides access to more than 3,000 other affordable brand and generic prescriptions, making it convenient for Michiganders to fill all their prescriptions via one simple and affordable program, especially if they don’t live near a Walmart store or Sam’s Club pharmacy.

This new initiative builds on the successful $4 prescription program which to date has saved customers more than $2 billion dollars on their prescriptions, including more than $43 million in Michigan. The company expects this savings number to continue to grow with the addition of this new pilot program.

MP: Maybe instead of turning over America's health care system to the federal government, we should turn it over to Wal-Mart.

Grade Inflation = Academic Fraud?

Soon college students will come home and present parents with their grades. To avoid delusion, parents should do some serious discounting because of rampant grade inflation. If grade inflation continues, a college bachelor's degree will have just as much credibility as a high school diploma.

The bottom line: To approach truth in grading, parents and employers should lower the average student's grade by one letter, and interpret a C grade as an F.

~Walter Williams' column "
Fraud in Academia"

Rankings for Economics and Business Blogs

Click to enlarge.
According to "Traffic Rankings for Business and Economics Websites," Carpe Diem ranks #11 (out of 164 websites) by average daily visits in April.

According to the Wikio rankings for business blogs, Carpe Diem ranks #21, right behind #20 Robert Reich.

Tuesday, May 05, 2009

Is the Recession Over?

NY TIMES -- Is the recession over? Finally, the answer appears to be yes. But before anyone gets too excited, a dose of reality. The difference between recession and recovery may be little more than a statistical technicality. The economy may not be falling, but neither is it rising very quickly.

The outlook is for more of the same: slow, perhaps even glacial, improvement. Unemployment may continue to rise for three to six months, perhaps longer. And there is always the possibility that the recovery will abort.

Still, moving up beats moving down. There is light, if only dim, at the end of the economic tunnel. The U.S. economy has been wallowing in recession for more than a year and a half and stagnating for about three years. Output hasn't fallen very much -- the drop has been only half the size of recent recessions. It has sent millions of Americans onto the jobless rolls.

Not everything is rosy. Robert Gordon, an economics professor at Northwestern University and a member of the committee that determines the stop and start dates of recessions for the National Bureau of Economic Research, says one-third of the economy will continue to stagnate. Commercial real estate is dead; until vacant office space is filled, there won't be new construction. And the defense industry is headed down, fast. Even exports -- which have been the main source of new jobs during the last few years -- will probably slow because the Japanese and German economies are running into trouble.

The best guess is that unemployment will stay steady or edge a bit higher because companies are unlikely to make permanent hires until they're convinced recovery is for real. When might that be? Perhaps early fall.

MP: This was published in the
New York Times on Sunday, March 22, 1992, which was actually one full year after the recession actually ended, but a full nine months before the NBER made its official announcement on December 22, 1992 that the 1990-1991 recession ended in March 1991.

Bottom Line: It takes almost two years after a recession ends before the NBER makes its final determination of a "trough" (21 months after the 1990-1991 recession, and 20 months after the March-November 2001 recession), and even a year after a recession ends, many in the media (see NY Times above: "There is always the possibility that the recovery will abort.") are not yet convinced of an economic recovery, and are still spreading suspicion, uncertainty and reservations about the expansion.

Despite Recession, Americans Still Have It Good

Channel 4 CBS-TV Denver: Professor Mark Perry studies the American economy at the University of Michigan-Flint.

"As much as we hear about how bad everything is, the reality is that people are still shopping, they're still out in lines. They're not in bread lines, they're in lines at the food court and lines at stores at some of the malls," said Perry.

Perry figured out a way to measure just how well we are doing. He took old Sears and Montgomery Ward catalogs from the 1940s through the 1970s and used them to gauge the typical price of a product. Then he looked at the average wage at that time and calculated the number of hours it would take at the average wage to buy some typical household items.

"Back in 1950, somebody would have to work 154 hours at the average wage back then to be able to afford a refrigerator and today somebody would only have to work around 22 hours," said Perry. That's not all he found. "Back in 1950 it took 127 hours of time or work to purchase a dryer, today that could be purchased for only 20 hours," said Perry.

He created a list of items. Things like a refrigerator and dryer, toaster, vacuum cleaner, sofa, etc. and figured it would take eight months to buy them. "An average worker today would only have to work 1.6 months to purchase those same items that almost everybody has in their household," said Perry.

Emerging Markets Hit 7-Month High

May 5 (Bloomberg) -- Emerging-market stocks rose for a fifth day, pushing the global benchmark index to a seven-month high, on speculation lower borrowing costs will quicken a recovery in economic growth and earnings.

The MSCI Emerging Markets Index climbed 0.8 percent to 706.37, bringing its five-day rally to 13%. Turkey’s ISE National 100 index led the advance in Europe, increasing 3 percent after the lowest inflation in 39 years bolstered expectations for more interest-rate cuts and lifted Akbank TAS. Philippine stocks posted the biggest gain in Asia as the country’s central bank said slower price increases will allow “increased flexibility” for monetary policy.

benchmark index has surged 55% from a four-year low in October on signs the first global recession since World War II is easing as governments worldwide cut borrowing costs and increase spending. Shares of Asian exporters got a boost today from reports showing U.S. pending sales of existing homes and construction spending rose in March.

Arctic Ice 2X As Thick As Expected: Global Cooling?

OSLO -- Al Gore said Tuesday the world must act quickly to slow the melting of the world's polar ice packs and glaciers before it reaches a critical rate for global warming. "We have to act and we have to act quickly because we don't want to cross this tipping point," the Nobel peace laureate and former U.S. vice president told a meeting of foreign ministers, experts and scientists from the most affected countries.

CANADA FREE PRESS -- The research aircraft “Polar 5” (see photo above) today concluded its Arctic expedition in Canada. During the flight, researchers measured the current ice thickness at the North Pole and in areas that have never before been surveyed. The result: The sea-ice in the surveyed areas is apparently thicker than scientists had suspected.

Normally, newly formed ice measures some two meters in thickness after two years. “Here, we measured ice thickness up to four meters,” said a spokesperson for Bremerhaven’s Alfred Wegener Institute for Polar and Marine Research. At present, this result contradicts the warming of the sea water, according to the scientists.

National Post -- Ice in the Arctic is often twice as thick as expected, report surprised scientists who returned last week from a major scientific expedition. The scientists - a 20-member contingent from Canada, the U.S., Germany, and Italy - spent one month exploring the North Pole as well as never-before measured regions of the Arctic. Among their findings: Rather than finding newly formed ice to be two metres thick, "we measured ice thickness up to four metres," stated a spokesperson for the Alfred Wegener Institute for Polar and Marine Research of the Helmholtz Association, Germany's largest scientific organization.


More Evidence That US Economy is Recovering

WASHINGTON (AP)A private measure of the U.S. services sector contracted for the seventh straight month in April but at a slower pace, the latest sign the economic downturn could be moderating. The services index from the Institute for Supply Management came in at 43.7 in April compared with 40.8 in March (see top chart above). Any reading below 50 indicates the service sector, where most Americans work, is contracting. Still, the reading was higher than economists expected and provides another sign the economy's steep downturn could be bottoming out.

May 5 (Bloomberg) -- Service industries in the U.S. contracted in April at the slowest pace in six months, signaling the economic slump is gradually abating. The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90% of the economy, rose to 43.7, higher than forecast, from 40.8 the prior month, according to the Tempe, Arizona-based group. Readings below 50 signal contraction.

ISM -- The seven industries reporting growth in April based on the NMI composite index — listed in order — are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Retail Trade; Finance & Insurance; Utilities; Other Services; and Accommodation & Food Services.

MP: The bottom graphs shows the ISM indexes for new orders and business activity. Business activity for the service sector is the highest since October, and new orders are the highest since September.
Finally, the 8.2 point increase in new orders is the largest one-month increase in the history of the ISM index (back to 1997).

India and China Mfg. Data Fuel Rise in Optimism

Financial Times -- India’s manufacturing sector grew in April for the first time in five months, spurring hopes of an end to falling growth estimates and contracting exports. The ABN-Amro Bank purchasing managers’ index index rose to 53.3 in April from 49.5 a month earlier, buoyed by higher demand for goods from Indian factories and stock building (see chart above). The reading is the highest since October and reflects a steady rise in orders since the global economic downturn undermined the index at the end of last year.

Meanwhile, the purchasing managers’ index for Chinese manufacturing published by CLSA, the Hong Kong-based brokerage, rose to 50.1 in April from 44.8 a month earlier, signalling an expansion in factory output for the first time in nine months (see chart above).

Las Vegas Home Sales Increase by 85% in March

LAS VEGAS -- SalesTraq reported a median existing-home price of $134,900 in March, a 41.3% decline from the same month a year ago. Existing-home sales during the month increased 85.6% percent to 3,626 recorded closings. It's the same trend housing analyst Larry Murphy of SalesTraq has seen for the past 11 months: rising sales and declining prices.

MP: If we tracked the real estate market the way we track auto sales (number of units sold regardless of price), we would conclude that the housing market is booming in places like California, Florida, Northern Virginia, the Twin Cities and Las Vegas. Unit sales for March are up significantly in all of those markets compared to March last year.


NY Times: Where Home Prices Crashed Early, Signs of a Rebound

Inman News: Home Sales Boom in 'Busted' Markets

Barack Obama & The DC Voucher Program

Related: LA Times article, "Failure Gets a Pass: Firing Tenured [Public School] Teachers Can Be a Costly and Tortuous Task"

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."