Tuesday, June 16, 2009

Min. Wage Hike = Summer Camp Job Killer

ALBEMARLE, N.C. -- The minimum wage is set to rise in North Carolina next month but the effects are already being felt at summer camps around the state. The wage hike’s strain on some already tight budgets could mean fewer counselors to look after the children.

Some camps have already cut field trips to save money. And now they must try to get by with fewer counselors.

HT: Frank Stephenson

Largest L.A. 3-Month Shipping Increase Since 2006

The Port of Los Angeles reported today on May shipping volume, measured in TEUs (Twenty-foot Equivalent Units, a standardized industry measurement used when counting cargo containers of varying lengths), noting the following:

May 2009 imports are greater than April 2009 due to lower warehouse inventory levels, showing some signs of improvement.

May 2009 exports are the highest for the year and greater than April 2009 due to stronger exports of raw materials.

Higher volumes May 2009 vs. May 2008 from China Shipping.

MP: Also, the three consecutive month shipping volume increases in March, April and May 2009 marks the first three month-in-a-row increase in almost three years, since the middle of 2006; and the 161,000 TEU increase over those three months is the largest three-month increase since early 2006 (see shaded areas above).

Shipping Index Rises For Third Straight Month

BUSINESS WEEK -- In yet another sign that some key players are acting as if recession is on the run, more offshore manufacturers are shipping goods into the consumer-driven U.S. market, global-trade tracker Panjiva reports. The May trade data mark the third consecutive monthly rise in the number of shippers moving such goods, the first such Trifecta since the firm began following this metric in July 2007.

Panjiva, a three-year-old statistics analysis firm based in New York and Boston, keeps track of manufacturer shipments around the globe for customers such as Home Depot.

“Increasingly, it feels that the worst is behind us,” says Josh Green, chief executive officer of the trade-tracking firm. Waxing cautious, however, he adds “Still, we have a long way to get back to the pre-crisis level of global trade.”

Nonetheless, the data, released today (June 16), suggest that global trade has hit bottom and is taking the first steps toward recovery. Some 131,688 suppliers were active in May, up 2% from the number in April. The rises in shipper tallies give the Panjiva analysts heart, since such totals have been sliding since at least July 2007, when they counted 161,905 shippers moving goods into the U.S.

See related CD post above.


4-Block World.

HT: R. Adams

Monday, June 15, 2009

Springsteen Shows: Who Gets Best Seats? Not You

Now comes word, courtesy of an Open Public Records Act request from the Newark Star-Ledger, that the biggest reason fans couldn’t find good seats to Bruce Springsteen's May concerts in New Jersey had nothing to do with Ticketmaster, TicketsNow, or scalpers. In reality, almost none were ever actually on sale. Instead, 90% of the best seats were reserved for friends and family of the band, venue employees, record-label executives and their guests.

Of the 20,000 seats at the May 21 show, 2,262, or 12%, were withheld from public sale by various interested parties, including public agency that runs the venue (hence the public-records act request). The paper noted that under New Jersey law, only 5% are allowed to be set aside. Of those, 1,450 were held for friends and family of Springsteen and his band, plus radio-station executives and the like; 812 were held by the New Jersey Sports and Exhibition Authority. And they weren’t exactly in the nosebleed section. Of the 1,126 seats closest to the stage, only 108 were officially listed for sale to the public.

~Wall Street Journal

MP: Ticket scalpers and re-sale markets often get the blame for high ticket prices for concerts, but it appears that the artists and promoters are at least partly responsible for creating ticket shortages and high prices by withholding the best seats for themselves.

Quote of the Day

Politics is the art of looking for trouble, finding it, misdiagnosing it, and then misapplying the wrong remedies.

~Groucho Marx

HT: Brian Wesbury and Bob Stein

Top 5% = 36% of Both Income and MLB Home Runs

Using the sortable Major League Baseball historical database, there were 1,226 active professional baseball players in the major leagues in 2008, and there were 4,877 total home runs for the season. The top 5% of the MLB players ranked by the number of home runs hit in 2008 (63 players with between 22 and 48 home runs for the season), hit 1,779 home runs, or 36.5% of the total.

Interestingly, in 2006 (most recent year) the IRS reported that the top 5% of American taxpayers earned 36.6% of the total taxable income that year.

In other words, home runs are distributed just about as unequally as income - the top 5% earn a disproportionate share of income, about 36%; and the top 5% of baseball players hit a disproportionate amount of home runs, about 36%.

Movin' Up and Down The Income Quintiles

How much income mobility exists in America? Research consistently affirms that there is substantial upward income mobility in the United States, with the lowest income earners typically showing the strongest results. A Treasury Department study of the 1996–2005 period used IRS income tax data to discern considerable mobility: more than 55% of taxpayers moved to a different income quintile. More than half the people in the lowest fifth of earners moved to a higher quintile over this period (29% to the second, 14% to the third, 10% to the fourth, and 5% to the highest).

Moreover, there is a great deal of movement in and out of the top income groups. The Treasury data show that 57% "of households in the top 1% in 2005 were not there nine years earlier." The rich sometimes get richer, but they get poorer as well. The study also reveals that income mobility has increased, not decreased, during the past twenty years. For example, 47.3% of those in the lowest income quintile in 1987 saw their incomes increase by at least 100% by 1996. That number jumped to 53.5% from 1996 to 2005.

~From "
The Politics of Envy" in The Hoover Digest, by Jeffrey Jones and Daniel Heil (HT: NCPA)

MP: A common misperception is that the top or bottom income quintiles, or the top or bottom X% by income, are static, closed, private clubs with very little turnover - once you get into a top or bottom quintile, or a certain income percent, you stay there for life, making it difficult for people to move to a different group. But reality is very different - people move up and down the income quintiles and percentage groups throughout their careers and lives. The top or bottom 1/5/10%, just like the top or bottom quintiles, are never the same people from year to year, there is constant turnover as we move up and down the quintiles.

As Thomas Sowell reminds us:

Comparing the top income bracket with the bottom income bracket over a period of years tells you nothing about what is happening to the actual flesh-and-blood human beings who are moving between brackets during those years. Following trends among income brackets over the years creates the illusion of following people over time. But the only way to follow people is to follow people.

Empire State Survey Suggests Recession is Ending

NEW YORK FED -- The Empire State Manufacturing Survey indicates that the general business conditions index fell several points from last month’s level, dropping to -9.4, but remained well above the string of deeply negative readings observed in the October-March period (see chart above). This month, 28% of respondents reported that conditions had improved, compared with 23% last month, while 38% of respondents reported that conditions had worsened, up from 28%.

Future indexes continued to rise, conveying an expectation that conditions should get better over the next six months. The future general business conditions index advanced 4 points, to 47.8, its highest level in nearly two years (see chart above); 61% of respondents expected conditions to improve over the next six months. The future new orders index, at 45.8, suggested similar optimism, as did the future shipments index at 48.7. The capital expenditures index rose into positive territory for the first time since October, climbing 13 points to 11.5, and the technology spending index also rose above zero, to 1.2.

MP: The Empire Fed future conditions index of 47.8 in June is the highest reading since July 2007, and the 54 point rebound over the last four months (March-June) matches the 54 point increase over the four month period from October 2001 to January 2002 that signalled the end of the 2001 recession.

Global Cooling? Coldest June on Record in Chicago

WGNTV.COM -- The cloudy, chilly and rainy open to June here has been the talk of the town. So far this June is running more than 12 degrees cooler than last year, and the clouds, rain and chilly lake winds have been persistent. The average temperature at O'Hare International Airport through Friday has been only 59.5 degrees: nearly 7 degrees below normal and the coldest since records there began 50 years ago.

Cartoons of the Day

Both from Gary Varvel.

Sunday, June 14, 2009

Eugene Fama, Jr. on Efficient Markets

Here's Part 2, Part 3 and Part 4.

Time Magazine Cover Story: Deja Vu All Over Again

If America's economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years. Even the economists do not have a name for the present condition, though one has described it as "suspended animation" and "never-never land."

The outward sign of the change is an economy that stubbornly refuses to recover from the recession. The current slump already ranks as the longest period of sustained weakness since the Great Depression. That was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults represent once-in-a-lifetime dislocations that will take years to work out.

Among them: the job drought, the debt hangover, the banking crisis, the real estate depression, the health-care cost explosion and the runaway federal deficit. "This is a sick economy that won't respond to traditional remedies," said Norman Robertson, chief economist at Pittsburgh's Mellon Bank. "There's going to be a lot of trauma before it's over."

~Time Magazine cover story "The Long Haul" (click to see the date of the article, excerpts above were modified slightly).

Women Underrepresented in Prison Populations

According to 2008 Department of Justice data, there were almost 13 times more men in U.S. prisons than women (see top chart above), and data from the Death Penalty Information Center show that there were about 65 men on death row for every woman in 2007 (see bottom chart above).

In other words, the data clearly show that men are way overrepresented (and women way underrepresented) in overall prison populations and among death row inmates. Isn't that what Larry Summers said that led to his resignation as president of Harvard University (see quote below)?

It does appear that on many, many different human attributes-height, weight, propensity for criminality, overall IQ, mathematical ability, scientific ability - there is relatively clear evidence that whatever the difference in means - which can be debated - there is a difference in the standard deviation, and variability of a male and a female population.

Don't Blame Only the Ticket Scalpers, Springsteen Withheld 2,262 of the Best Tickets for NJ Concert

NJ REAL TIME NEWS -- Fans were quick to blame Ticketmaster and ticket brokers when they were unable to score seats to last month's Bruce Springsteen and the E Street Band concerts at the Izod Center in East Rutherford. But an examination of ticket sale data from the May 21 concert shows Springsteen himself may be part of the problem. The best seats in the house that night were the 1,126 seats in the four sections closest to the stage, but only 108 of those tickets were ever for sale to the public, according to new ticket data obtained through the Open Public Records Act. None of the more than 9,800 seats in the upper level -- the worst seats -- was kept back for the artists and promoters.

In all, 2,262 seats were held back from public sale, for the band, its record company and agent and the New Jersey Sports and Exposition Authority, the public agency that operates the arena and acted as promoter for the concerts, according to the ticket sale records. That number represents about 12 percent of the total. That violates state law, say some legislators, including lawmakers who have sponsored bills to regulate ticket sales.

Not only were a large number of tickets held back from the public, but the majority of them were the best seats in the arena. And, ticket brokers say, that helped drive up prices on the secondary market. Although tickets sold for $95 and $65 in the initial sale, some tickets were selling for hundreds of dollars more on the secondary market.

"Simple economics 101 would tell you that any time you restrict supply the price will be much greater," said Robb Kenison, a ticket broker from the Washington, D.C., area. "I would not be surprised if a seat in 109, 110, 120 or 121 was double if not triple what it would have been had they sold even 50 percent of the seats in the sections. Fans have always blamed ticket brokers and Ticketmaster for not being able to get a good seat when in reality the blame lies with the artist and promoter for holding back the majority of the good seats."

"There are a lot of people with their fingers in the pie. Sometimes it's not just the scalpers," said Numa Saisselin, president of the Count Basie Theatre in Red Bank. "The sale of tickets is all too often manipulated to someone's ends, and that someone is rarely the fan."

We Waged a War Against Drugs, And Drugs Won

Here in the United States, four decades of drug war have had three consequences:

1. We have vastly increased the proportion of our population in prisons. The United States now incarcerates people at a rate nearly five times the world average. In part, that’s because the number of people in prison for drug offenses rose roughly from 41,000 in 1980 to 500,000 today. Until the war on drugs, our incarceration rate was roughly the same
as that of other countries.

2. We have empowered criminals at home and terrorists abroad. One reason many prominent economists have favored easing drug laws is that interdiction raises prices, which increases profit margins for everyone, from the Latin drug cartels to the Taliban. Former presidents of Mexico, Brazil and Colombia this year jointly implored the United States to adopt a new approach to narcotics, based on the public health campaign against tobacco.

3. We have squandered resources. Jeffrey Miron, a Harvard economist, found that federal, state and local governments spend $44.1 billion annually enforcing drug prohibitions. We spend seven times as much on drug interdiction, policing and imprisonment as on treatment.

It’s now broadly acknowledged that the drug war approach has failed.

~Nicholas Kristof
in yesterday's NY Times

MP: Note the "War on Drugs" is actually a war against generally peaceful American citizens who decide to buy, sell or ingest drugs that are somewhat arbitrarily considered to be illegal by government officials, e.g. cannabis sativa, an annual, dioecious flowering herb that grows naturally all over the world.

Markets in Everything: Bypass Burgers

The Heart Attack Grill website.

Lazy Summers, Short Days, Fewer Weeks in School

THE ECONOMIST -- American children also have one of the shortest school days, six-and-a-half hours, adding up to 32 hours a week. By contrast, the school week is 37 hours in Luxembourg, 44 in Belgium, 53 in Denmark and 60 in Sweden (see chart above). On top of that, American children do only about an hour’s-worth of homework a day, a figure that stuns the Japanese and Chinese.

American children have it easier than most other children in the world, including the supposedly lazy Europeans. They have one of the shortest school years anywhere, a mere 180 days compared with an average of 195 for OECD countries and more than 200 for East Asian countries. German children spend 20 more days in school than American ones, and South Koreans over a month more. Over 12 years, a 15-day deficit means American children lose out on 180 days of school, equivalent to an entire year.

Americans also divide up their school time oddly. They cram the school day into the morning and early afternoon, and close their schools for three months in the summer. The country that tut-tuts at Europe’s mega-holidays thinks nothing of giving its children such a lazy summer. But the long summer vacation acts like a mental eraser, with the average child reportedly forgetting about a month’s-worth of instruction in many subjects and almost three times that in mathematics.

The understretch is also leaving American children ill-equipped to compete. They usually perform poorly in international educational tests, coming behind Asian countries that spend less on education but work their children harder. California’s state universities have to send over a third of their entering class to take remedial courses in English and maths. At least a third of successful PhD students come from abroad.

Saturday, June 13, 2009

Chief Executives: "No Recovery Soon"

Differing markedly from the view of most economists, the people who run the nation's biggest companies say the recession is likely to linger for many more months, with a recovery not likely until next year.

"There's no sign of recovery -- none at all," declared Henry B. Schacht, chairman of the Cummins Engine Company, a leading producer of such cyclical bellwethers as diesel engines. "The people who buy industrial equipment are not buying it."

One after another, individual corporate chiefs among about 100 members of the Business Council expressed skepticism in interviews and discussions over the past two days about the recession's ending this summer, thus staying within the average length of the eight previous post-war recessions.

"Chief Executives See Recession Lingering to 1992," from the NY Times on May 12, 1991, two months after the July 1990-March 1991 recession ended.

MP: Except continuing and ongoing gloom and doom following the end of the current recession. Consider it to be a lagging economic indicator.

Life in Cuba With Russian Elevators That Don't Work: Walking Up to the 14th Floor For 7 Months

A couple of days ago we held a small celebration with friends, in honor of the completion of the installation of new elevators. The party was well deserved because for more than seven months we had to climb up to our fourteenth floor via the stairs. We let everyone know by phone that there would be merrymaking until late and everyone brought something to contribute to the fun. It was a shame that they arrived so tired and with an expression on their faces of having been cheated, because the brand new, recently installed Russian elevators announced with the flashing of their red lights that they were broken.

~Cuban blogger Yoani Sanchez

Friday, June 12, 2009

Consumer Confidence Rises 4th Straight Month for the First Time Since the End of the 2001 Recession

June 12 (Bloomberg) -- Confidence among U.S. consumers rose this month for a fourth straight time, reflecting signs that the worst recession in at least five decades may end this year. The Reuters/University of Michigan preliminary index of consumer sentiment increased to 69, less than forecast while the highest level in nine months, from 68.7 in May.

“Confidence is slowly but surely coming back,” James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report. “In the next few months we should see more follow-through in the labor market, which in turn should give confidence a further boost, which in turn should lead to a sustained recovery in consumer spending.”

MP: The last time the Michigan consumer sentiment index increased in four consecutive months was the period from October 2001 to January 2002, which signalled the end of the 2001 recession (see shaded area in chart above). The four-month cumulative increase of 12.7 points in consumer sentiment from March to June 2009 (see shaded area in chart) is even greater than the 11.2 point increase in late 2001-early 2002.

Minimum Wage: Teenage Job Killer

Despite severe economic difficulties confronting businesses, and soaring unemployment among youths and minorities, the federal minimum wage is slated to increase to $7.25 in July from $6.55 today. This will be the final step of a three-step increase enacted in the spring 2007, when the unemployment rate was 4.5%. Based on 20 years of research, I doubt there is ever a goodtime to raise the minimum wage. However, with the aggregate unemployment rate at 9.4%, the teen unemployment rate exceeding 22%, and the unemployment rate for black teens nearing 40%, next month's increase seems like the worst timing possible (see chart above).

The accumulated evidence undermines the case for minimum wages even in the best of times. I recognize that there is continuing debate about some of the effects of minimum wages, and that strong public support for higher minimums -- regardless of the evidence -- will likely lead to future increases.

But let's put aside the broader debate and focus on the narrower question: Should we raise the minimum wage in the worst of times? When so many people -- especially the young -- are struggling to find a toe hold in the labor market, does it really make sense to make it harder for employers to hire them? I do not expect President Obama or congressional Democrats to give up their long-held support for a higher minimum wage. However, they should delay the increase in the minimum wage scheduled for this summer.

~David Neumark in today's WSJ

The high rate of unemployment among teenagers, and especially black teenagers, is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws. We regard the minimum wage law as one of the most, if not the most, antiblack laws on the statute books.

~Milton Friedman in Free to Choose

The idea of using a minimum wage to overcome poverty is old, honorable - and fundamentally flawed. It's time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.

~NY Times "The Right Minimum Wage: $0.00" (1/14/1987)

Thursday, June 11, 2009

Scalper Smackdown: Stub Hub vs. Ticketmaster

Problem: For Miley Cyrus' upcoming "Hannah Montana" tour, she wants the sale of her tickets "to be directly to her fans," and she therefore wants to eliminate the secondary market for tickets to her concerts.

Solution: Ticketmaster will sell only paperless tickets for the Miley Cyrus concerts, which will require attendees to present a credit card instead of a paper ticket, to prevent scalping and resales.

Alternative Solution:
To control ticket resales, Ms. Cyrus has two very powerful and effective weapons under her direct control:

1. Ticket Prices: The only reason that a secondary market exists in the first place, is that Ms. Cyrus, her management, or the concert promoters, have mistakenly (or perhaps intentionally) UNDERPRICED the tickets at an artificially low, BELOW-MARKET price, which then actually CREATES the secondary market by generating EXCESS DEMAND. One way to eliminate the resale market is to raise the ticket prices to a market-clearing price. In fact, at some ticket price ($100, $500 or $1,000), some tickets would actually go unsold and there would be empty seats and tickets available at the box office on the night of the concert.

2. Ticket Supply: The only reason that a secondary market exists in the first place is Ms. Cyrus, her management, or the concert promoters, have mistakenly (or perhaps intentionally) UNDER-SUPPLIED the number of concert tickets in each city that would be necessary to meet the demand for concert tickets in that market.

Here is the concert schedule for Miley Cyrus' fall tour, with concerts in about 43 American cities. In only two of those cities, Uniondale, NY and Newark, NJ, is she doing more than one show; she'll be doing two concerts in each of those cities. The ticket resale market for Miley Cyrus concerts would be easily eliminated if she did 2, 3, 4 or 5 shows in each city, or whatever number of shows would be required to meet the demand for tickets. In fact, at some number of multiple concerts in a given city (2, 5 or 12 shows?), tickets would go unsold and there would be empty seats at some of the shows.

Bottom Line: Why is it that for "Hannah Montana: The Movie," there was no secondary market for movie tickets, but for the Miley Cyrus Concert Tour, there will be a potentially huge secondary market for concert tickets?

Movie tickets are supplied and priced to meet the market demand which eliminates the secondary market, whereas concert tickets are under-supplied and under-priced, CREATING the secondary market for ticket resales at above face value.

Eliminating the secondary market for concert tickets is EASY: a) Raise ticket prices, and/or b) increase the number of tickets. And both of the options are completely under Miley Cyrus' control (or the control of her management or promoters).

US Financial Conditions Are Best Since June 2008

The Bloomberg U.S. Financial Conditions Index "combines yield spreads and indices from the Money Markets, Equity Markets, and Bond Markets into a normalized index. The values of this index are z-scores, which represent the number of standard deviations that current financial conditions lie above or below the average of the 1992 - June 2008 period."

MP: The chart above displays the Bloomberg U.S. Financial Conditions Index daily from May 1, 2008 through today (June 11, 2009), and shows that the index is now at the same level as June of last year. Based on this measure, financial conditions in the U.S. were at their worst in October 2008, and have been improving steadily for the last 8 months. The last time the index was at this level was June 19, 2008.

Great Depression II? Not Even Close.

According to the most recent (May 15, 2009) Philadelphia Federal Reserve Survey of Professional Forecasters, annual real GDP will decline by -2.8% this year and then increase next year by +2%. Assuming that is the case, the -2.8% decline in annual real GDP in 2009 during this recession won't be anything close to the -25.6% cumulative decline in real GDP from 1930 to 1932.

Update: World Markets Increase By $11.7 Trillion

Thanks to Scott Grannis for the chart above, showing the $11.7 trillion increase in global stock market capitalization since the March 9 bottom, using weekly data from Bloomberg. I reported yesterday on the $9.625 trillion increase through the end of May, using monthly data from the World Federation of Exchanges. Having access to Bloomberg gives me a major case of "data envy."

Jobless Claims Fall To Lowest Level in 4 Months

June 11 (Bloomberg) -- Fewer Americans filed claims for unemployment benefits last week, indicating the deepest job cuts may be subsiding even as companies hold off on hiring.
Initial jobless claims fell by 24,000 to 601,000 in the week ended June 6, fewer than forecast and the lowest level since January, from a revised 625,000 the prior week,
Labor Department figures showed today in Washington. The four-week moving average of initial claims, a less volatile measure, fell to 621,750 from 632,250 (see chart above).

MP: The 4-week moving average of 621,750 is the lowest level since February 14 (see red line above), almost four months ago, and the moving average has dropped in 7 out of the last 9 weeks.

Haynesville Shale: Enough Nat. Gas for A Decade

FORBES (June 5, 2009) -- Haynesville Shale (LA and Eastern Texas, discovered in Dec. 2008) is touted as the largest natural gas field in the continental U.S. About 200 feet thick, the stream of shale lurks two miles under the pastures, trailer homes and piney woods of the region. The 3 million-acre formation stretches into East Texas and holds some 251 trillion cubic feet of recoverable natural gas. There could be enough gas to satisfy domestic demand for a decade, if market prices can justify going after it.

It's too early to say exactly how lucrative the Haynesville will be, but with impressive initial recovery rates, the production rush is on. East Texas and Northwest Louisiana have been producing oil and gas for decades, but new technology has made this new, deep play worth trying for. More than $3.2 billion has already been paid to private landowners in bonuses for leases and royalty checks. State and local tax revenues boomed by at least $153.3 million, according to an economic impact study released in April.

OIL AND GAS INVESTOR (May 26, 2009)-- The Haynesville shale may be the biggest natural gas play in the U.S. today. “Some think it may be one of the biggest gas fields in the world,” says Questar Corp. chairman, president and chief executive Keith Rattie. “And the irony here is that, until mid-March of 2008, very few people in the industry and certainly nobody in Washington had ever heard of the Haynesville shale.”

“The Haynesville shale is perhaps one of the best illustrations of that stunning breakthrough in our ability to exploit the resource base in this country,” Rattie says in describing whether the U.S. has sufficient natural gas supply to support conversion of more U.S. energy demand off oil and coal to natural gas.

“What we’ve seen in recent years is that technology that was first adapted to exploit gas in the Barnett shale in the Fort Worth Basin in Texas has now been applied to a series of major new shale plays that just a few years ago most observers thought would never be commercially viable. “We have the Fayetteville shale, the Haynesville shale, the Marcellus shale and, in Canada, there are the Horn River shales. You’re going to see horizontal drilling technology and, in particular, multi-fracture-stimulation technology applied to rock that we thought was unproducible just a few years ago.”

At the current rate of U.S. natural gas consumption, many gas-market observers suggest North America hosts a 100-year supply of proven, producible reserves.

FORGET THE WILDERNESS (June 23, 2003) --Forget about terrorists. Don't give another thought to SARS. The single greatest threat to the U.S. right now comes from a critical shortage of natural gas. The impending crisis will affect all consumers directly in the pocket book, and it may well mean that some people won't survive next winter. The problem is not with wells or pumps. The problem is that North America is running out and there is no replacement supply.

HT: Benjamin

Wednesday, June 10, 2009

There Is A Very Bright Future for the U.S. Auto Industry; IF You Include the Foreign Transplants

As we learn more about the troubles of GM and the other U.S.-owned car companies, we should reconsider what it means to be an American car company and look at which car companies are really benefiting our country, our workers and our communities.

BMW, Honda, Hyundai, Kia, Mercedes, Mitsubishi, Nissan, Subaru, and Toyota all have or are building auto manufacturing facilities in the United States. And not one of these has shuttered a plant during this recession or before. At a time when the domestic-owned car industry is in intensive care, with Chrysler and GM in bankruptcy, the rest of the domestic manufacturing industry is doing pretty well and continuing to benefit America and the communities in which their plants are located.

These foreign-owned plants are nothing less than the foundation of the new U.S. auto industry. In 2008, 3.1 million cars of the total 8.7 million sold, or just over a third, were produced by foreign-owned companies making their products here. That percentage is surely higher now, with the recent plant closings by American-owned car companies. And last year, plants for foreign-owned auto companies purchased $53 billion in parts from U.S. suppliers, further increasing the economic benefits to the U.S. of these vehicles being manufactured here.

Looking closely at the U.S. and non-U.S. content of vehicles sold here, the once-clear line between domestic and foreign autos becomes blurred. According to the Federal Reserve Bank of Chicago, Ford and GM as a whole had around 80% of domestic content in their vehicle lines in 2006 – but this was just barely ahead of Toyota (at 76.3% domestic)–which itself was actually ahead of Chrysler (at 71.3% domestic), see chart above.

There is a bright future for auto manufacturing in the United States–but only if you include foreign-owned auto plants located in the U.S., which have generated more jobs and helped sustain communities better in recent years than the domestic-owned auto industry.

World Stock Markets Gain $5 Trillion in May

As stock markets around the world gained ground last month, the total world stock market capitalization increased by almost $5 trillion in May, according to preliminary data released today by the World Federation of Exchanges. The May gain follows increases of $3.65 trillion in April and $1 trillion in March, and is the first time in almost two years of three consecutive monthly advances in world stock market value.

The cumulative three-month gain of $9.625 trillion in world stock market capitalization brings the value of world equities up to $38.39 trillion, the highest level since September 2008, and marks a 33.5% increase from the February bottom (see chart above). All 52 world stock markets reporting to the World Federation of Exchanges registered May increases in their domestic stock market capitalization, led by India with a whopping 44% increase.

The Web’s Most Dangerous Search Terms

Click to enlarge.

From a McAfee report (HT: Scott Jagow).

Young Males Dominate Computer Competition

COMPUTERWORLD -- Programmers from China and Russia have dominated an international competition on everything from writing algorithms to designing components. Whether the outcome of this competition is another sign that math and science education in the U.S. needs improvement may spur debate. But the fact remains: Of 70 finalists, 20 were from China, 10 from Russia and two from the U.S.

About 4,200 people participated in the U.S. National Security Agency (NSA)-supported challenge. The NSA has been sponsoring the program for a number of years because of its interest in hiring people with advanced skills.

China's showing in the finals was also helped by the sheer volume of its numbers, 894. India followed at 705, but none of its programmers were finalists. Russia had 380 participants; the United States, 234; Poland, 214; Egypt, 145; and Ukraine, 128, among others. Of the total number of contestants, 93% were male, and 84% were aged between 18 and 24.

MP: Could this suggest that there is "pervasive unexamined gender bias” against women in computer science?

Baseless Bias and the New Second Sex

Claims of bias against women in academic science have been greatly exaggerated. If there is a crisis in the academy that merits a congressional investigation, it is not that women Ph.D.s are being shortchanged in math and science hiring and tenure committees, for that is not true. It is that men are quickly becoming the second sex in American education.

Christina Hoff Sommers, resident scholar at the American Enterprise Institute

Tuesday, June 09, 2009

Richmond Fed Rebound Suggests Econ. Recovery

RICHMOND FEDERAL RESERVE -- In May, the seasonally adjusted manufacturing index—our broadest measure of manufacturing activity—jumped to 4 from April’s reading of -9 (see chart above). Among the index’s components, shipments gained twelve points to 9, new orders rose twelve points to finish at 10, and the jobs index advanced fourteen points to end at -12.

MP: Signalling the end of the 2001 recession, the economy was in full recovery when the Richmond Fed Manufacturing Index was above zero by early 2002 (see chart above). The index is now above zero for the first time in more than a year, suggesting possibly that the Richmond Fed region, if not the rest of the country, is now in recovery.

5th Monthly Increase in Used Vehicle Value Index

MANHEIM CONSULTING -- May marked the fifth consecutive monthly increase in wholesale used vehicle prices on a mix, mileage, and seasonally adjusted basis (see charts above). The Manheim Used Vehicle Value Index now stands at 109.1, which resulted in the first year-over-gain in pricing since October 2007. May's rise in wholesale pricing was a result of continued favorable supply/demand forces, an improvement in consumer confidence, and better availability of retail financing. All of these forces will continue, or strengthen, in the months ahead.

The Conference Board's consumer confidence index posted large gains in both April and May, which brought the index back to its highest level since September of last year. Not unrelated, the Manheim Index also moved back to its highest level since September of 2008 (see chart below). Consumer confidence is an important indicator of the consumer's willingness to take on a big purchase such as a used vehicle. The consumer's ability to buy has been helped by the greater availability of retail financing. In particular, many lenders have been willing to advance larger loan amounts for a given vehicle.

Fear Index Drops to a 9-Month Low

The CBOE Volatility Index fell to almost a nine-month low today of 28.27, the lowest closing value since September 12, 2008.

Krugman: Economy is Stabilizing

June 8 (Bloomberg) -- The U.S. economy probably will emerge from the recession by September, Nobel Prize-winning economist Paul Krugman said.

“I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer,” he said in a lecture today at the London School of Economics. “Things seem to be getting worse more slowly. There’s some reason to think that we’re stabilizing.”

HT: The Gartman Letter

Monday, June 08, 2009

Marketplace Commentary: End Buy American Rules

"Buy American" provisions might make sense politically, because they create huge political payoffs for elected officials who protect jobs in domestic industries. But, economically, "Buy American" rules, like all forms of trade protectionism, make no sense at all because they will ultimately destroy more American jobs than they save. If we want the U.S. and world economies to recover from the recession as quickly as possible, we should end the "Buy American" rules.

Check it out here.

Interactive Map: GM's Global Footprint

Great interactive map here from the Detroit News (HT to Dallas Walton) showing GM's plants and manufacturing employees, production and sales, as well as suppliers and retirees, in the United States and around the world.

Some interesting data from the map:

1. In Michigan there are 193,301 GM retirees and 46,467 active manufacturing workers, which is a ratio of more than 4 retirees per active worker. For Ohio, the ratio is more than 6 retirees per active worker, and in Indiana there are 8.6 retirees per active worker! Assuming that all of the retirees are receiving full pension benefits and lifetime health care coverage, it's pretty clear that GM's legacy costs are HUGE, and explain why the hourly cost per active worker in 2008 were $69 in full labor costs (including legacy costs).

As someone said recently, "GM has become a health care benefits management firm that sells cars for a loss as a side venture."

2. To put the decline in the number of GM manufacturing workers in perspective, consider that there are currently about 80,000 GM manufacturing workers in the entire U.S. In the 1970s, GM employed almost 85,000 workers in just one U.S. city: Flint, Michigan, "Vehicle City."

Government Motors: Quotes of the Day

The government that runs Amtrak (which has lost $23 billion, in today's dollars, just since 1990) vows to make GM efficient. But one reason Amtrak runs on red ink is that legislators treat it as their toy train set, preventing it from cutting egregiously unprofitable routes.

George Will

The Edsel was one of the biggest flops in the history of car making. Introduced with great fanfare by Ford in 1958, it had terrible sales and was junked after only three years. But if Congress had been running Ford, the Edsel would still be on the market.

Steve Chapman

Sunday, June 07, 2009

Education Pays: More Money, Less Unemployment

BLS Link.

More on the Great Mancession of 2008-2009

The chart above (click to enlarge) shows May unemployment rates by industry from the current BLS employment report (Table A-11), and employment by gender in selected industries. The chart helps explain the Great Mancession of 2008-2009 and the historically unprecedented male (10.5%) - female (8%) jobless rate gap of 2.5%.

Two of the hardest hit sectors in the current recession are construction (19.2% unemployment rate) and manufacturing (12.6% unemployment rate), both far above the 9.1% average jobless rate (from Table A-11), and those sectors are predominantly male industries: 97.5% of construction jobs in 2008 were held by males, and males held 70% of the manufacturing jobs (data here).

On the other hand, the growing education (74%) and health services (75%) sectors are predominantly female, and the government sector is 57% female; and those two industries have jobless rates far below average. The unemployment rate for education and health services workers (4.9%) is about half the average rate of 9.1%, and government workers enjoy a jobless rate (3.1%) that is about 1/3 of the average rate.

Saturday, June 06, 2009

Jobless Claims as Percent of Labor Force Falls for 2nd Month in a Row, First Time Since Early 2006

Using May employment data, the graph above shows Initial Jobless Claims as a Percent of the Labor Force (2005-2009) to reflect the May laborforce of 155,081,000, and the May average for initial unemployment claims (628,450 for the 4-week moving weekly average). That measure of the labor market conditions has now declined for two consecutive months for the first time in more than three years, since early 2006 (see shaded areas in chart above).

See related Scott Grannis post "The Job Storms Has Passed."

Larry Kudlow: The "Economic Man-Cession"

From last night's "The Kudlow Report" show on CNBC.

Retail Clinics Expand: Almost Everybody is Happy

LA TIMES -- Amid the economic downturn and slow growth for retail and outpatient medical care services, pharmacy giants Walgreen and CVS are rolling out new specialized services at their in-store clinics, going beyond treatment of routine maladies. Launched over the last four years to care for such simple ailments as ear and sinus infections, strep throat or pinkeye, retail clinic operators now are training nurses to do specialized injections for such chronic conditions as osteoporosis and asthma.

Retail clinics not only market themselves as a convenience, they also can be less expensive, providing a competitive threat to primary-care doctors and even specialists. Costs for services for those paying out of pocket at retail clinics generally run $55 to $75 compared with $100 or more for a visit to a primary-care physician.

Typically staffed by advanced-degree nurses known as practitioners, most of the nation's more than 1,100 retail health clinics are open seven days a week, with no appointment needed. The model has been greeted by health insurers, employers and consumer groups as one way to address the rising number of uninsured Americans, estimated at more than 46 million.

MP: There's only one group who is apparently not so happy about the expansion of retail clinics and the services they offer. Can you guess who? (Hint: Check the 8th paragraph of the story.)

Wal-Mart Exports Big-Box Concept to India, Russia

WALL STREET JOURNAL -- Wal-Mart Stores rolled out its deep-discount retailing formula in India, targeted at a more than $350 billion a year retail industry made up almost entirely of small merchants. Under Indian rules governing foreign retailers, Wal-Mart and its joint venture partner, Bharti Enterprises Ltd., can't sell directly to consumers but instead will operate a cash-and-carry business under the name Best Price Modern Wholesale, selling 10,000 products to licensed store owners, schools, hospitals, hotels and other institutions.

Will Russia be next?

Everyday Job Creator, Including 1,500 in Michigan

BENTONVILLE, Ark., June 4, 2009Walmart U.S. announced today that it will create more than 22,000 jobs in 2009 to staff new or expanded stores in the United States. The company is hiring for a number of positions including store management, pharmacists, human resource managers, customer service associates, cashiers and sales associates among others.

The company will create more than 1,000 jobs in several individual states. For example, the company will create approximately 1,300 jobs in Arizona; 1,000 jobs in California; 1,300 jobs in Florida; 1,500 jobs in Michigan; 1,200 jobs in New Jersey; 1,000 jobs in South Carolina; 1,200 jobs in Utah and 1,100 in Virginia.

“We are excited that during these economically challenging times Walmart is investing in Michigan by creating good paying jobs and offering benefits to their employees,” said Richard Studley, president and chief executive officer of the Michigan Chamber of Commerce. “The positive impact that these jobs will have on the families of the new employees and their communities cannot be overstated.”

Friday, June 05, 2009

Leaky Bucket Fiscal Policy

Wal-Mart and Chicago's South Side Food Desert

1. CHICAGO TRIBUNE -- Various surveys have shown the dearth of supermarkets in Chicago's poor neighborhoods and how the attendant health problems ripple through the state and city. But you don't need a survey to know there's a problem. Wander around parts of the South or West Sides. Look. People shop for meals in liquor stores and fast-food joints, in little shops where fresh means moldy tomatoes and tired meat.

Adults there are far likelier to have diabetes and hypertension. Children are likelier to be obese. People are job-starved too. Supermarkets would bring more than food.

2. CHICAGO TRIBUNE -- The effort to bring more grocery stores to low-income areas--so-called "food deserts"--would receive a shot in the arm from legislation passed this week by the Illinois General Assembly. The $3.1 billion public spending bill passed Monday includes $10 million for the Illinois Fresh Food Fund, money that would go to urban and rural neighborhoods with reduced access to healthier foods because they're underserved by supermarkets.

3. CHICAGO TRIBUNE -- Mayor Richard Daley contends there is no chance the latest effort to have a Wal-Mart built on Chicago’s South Side will succeed. Daley said Thursday that even though the store would generate tax revenue and create jobs for neighborhood residents, there aren’t enough votes in the City Council to pass the required redevelopment agreement.

Alderman Howard Brookins has tried for years to locate a Wal-Mart store in an industrial site being redeveloped into a shopping center. Currently, Wal-Mart operates a store on Chicago’s West Side. Opposition to Wal-Mart has come from labor unions, who claim the retailer does not pay workers adequately and skimps on benefits. Daley’s floor leader in the City Council, Alderman Pat O’Connor, says Brookins’ latest effort comes at a time the city is trying to keep peace with the unions.

MP: So Wal-Mart wants to build a store on the south side of Chicago in a "food desert," probably including a food supermarket with healthy foods in an area underserved by supermarkets, which would create hundreds of jobs, and I'm guessing that Wal-Mart is willing to do this without any government subsidies from the Illinois Fresh Food Fund, and its efforts are blocked by the unions. But how many supermarkets and jobs are unions providing on the south side of Chicago in the "food desert"? I'm guessing none.

Thanks to CD reader Steven Bridges for the links.

The Great Man-Cession of 2008-2009 Continues

The BLS data released today show that the 2.5% difference between the male unemployment rate (10.5%) and female unemployment (8%) in May is the highest male-female jobless rate gap in the history of BLS data back to 1948 (see chart above of the monthly unemployment rates since 2002; and the chart below of the DIFFERENCE between male and female jobless rates since 1948). Further, the 2.5% gap matches the largest gap in either direction; there was a 2.5% female-male jobless rate gap for several months in the mid-1960s and again in the mid-1970s (see chart below, the female jobless rate exceeds the male rate for observations below the red zero line).

The chart above showing the monthly male-female jobless rate gap back to January 1948, also displays the last 11 U.S. recessions (shaded areas) and suggests the following:

1. The current male-female jobless rate gap of 2.5% is truly unprecedented; there has never been such a huge gap between the unemployment rate for men and women in any previous recession, or any previous expansion.

2. In the last three U.S. recessions (1981-1982, 1990-1991 and 2001), the male jobless rate exceeded the female rate by about 1%, but nothing close to even approaching the current 2.5% male-female jobless rate gap.

3. In the other past recessions, there either wasn't much of a male-female jobless rate gap at all, or a jobless rate gap in favor of men, like during the two recessions of the 1970s when female unemployment rate exceeded male unemployment by about 2%. However, that 2% gap in favor of men was actually fairly typical during much of the period between the mid-1960s and late 1970s, recession or not.

Bottom Line: We are experiencing an unprecedented male recession during the current economic downturn, and the "Great Man-Cession" of 2008-2009 continues to worsen.

VW's Car Factory of the Future

HT: Gerry Knesek

Thursday, June 04, 2009

It's Tough For Some Single Guys in the Man-Cession: Chicks Don't Dig Unemployed Men

NEW YORKSean Hamilton considered stopping his search for that special someone when he lost his job in January. With 90 percent less income and no unemployment coming in, the 34-year-old IT professional couldn't really pay for a dinner date. And how would he explain his financial situation without coming across as a slacker?

"To speak plainly, chicks don't dig a broke guy," said the Dallas resident, now a part-time consultant. So he came up with a strategy: "I don't bring it up."

What Would Milton Friedman Say?


Humorous Quote of the Day

I blame feminism and Facebook for the death of the American automobile.

~P.J. O'Rourke on NPR

NY Fed Treasury Spread Model Suggests Economic Recovery Has Started, 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 May 2009, and the Fed's recession probability forecast through May 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 3.11%) to calculate the probability of a recession in the United States twelve months ahead (see chart below of the Treasury spread, click to enlarge).

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 in almost every month (see top chart above). For May 2009, the recession probability is only 1.54% and by May 2010 the recession probability is only .17%, the lowest level since June 2005.

Further, the Treasury spread has been above 2% for the last 15 months, a pattern consistent with the economic recoveries following the last six recessions (see chart above). The pattern of the recession probability index so far this year (going below double-digits and declining monthly) is very similar to the pattern starting in March 2002 that signalled the end of the 2001 recession (see chart below).

Bottom Line: Looking forward to next year, there is almost no chance that the recession will continue into 2010. Further, 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.

Wednesday, June 03, 2009

US Financial Conditions Are Best In Almost 1 Year

The Bloomberg U.S. Financial Conditions Index "combines yield spreads and indices from the Money Markets, Equity Markets, and Bond Markets into a normalized index. The values of this index are z-scores, which represent the number of standard deviations that current financial conditions lie above or below the average of the 1992-June 2008 period."

MP: The chart above displays the Bloomberg U.S. Financial Conditions Index daily from May 1, 2008 through today (June 3, 2009), and shows that the index is approaching the same levels as June 2008. Based on this measure, financial conditions in the U.S. were at their worst and bottomed in October 2008, and have been improving steadily for the last 7 months. We're now getting back the same financial conditions that prevailed a year ago.

Emerging Markets: GM's Only Bright Spots Lately. They May Play An Important Role in GM's Future

NY TIMES -- As G.M. painfully restructures in the United States and Canada, and spins off its European business, the company’s operations in emerging markets like China, India and Brazil have survived, so far, virtually unscathed.

Unlike G.M.’s United States business, these operations have been growing. Sales increased 10% last year in Brazil, 9% in India and 6% in China. Recent numbers in some areas are even better — G.M.’s sales in the Asia Pacific region were up 44% in May compared with the year before.

Cheap labor in these markets helps to bolster profit margins, while millions of people who do not yet own a car make sales growth easy. Karl Slym, president and managing director of G.M. India, said he expected to add 50 dealers in India this year, stretching into the rural market.

Emerging markets have been the only bright spots at G.M. for some time. The North American and European businesses have racked up enormous losses — $14.1 billion from North America’s continuing operations before taxes in 2008. In Europe, G.M. lost $2.8 billion before taxes in 2008, but G.M.’s Latin American, African and Middle Eastern operations earned $1.3 billion before taxes in 2008, down slightly from the year before.

MP: Let's just hope that our "Buy American" policies don't backfire. GM's future profitability, like many other American companies, might rely pretty heavily on overseas markets to survive. Without the profitabilty of emerging markets (about $2.5 billion) over the last two years, GM would probably be in even worse shape today.

See related CD post above on "Buy American."

HT: Sanil Kori