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

NY Times: "Buy American" Is a Terrible Idea

It’s not surprising that Democrats in Congress could not resist adding a “Buy American” provision to the fiscal stimulus bill earlier this year. It might seem sensible (or at least politically useful) to ensure that taxpayer dollars would be used exclusively to support American jobs.

But as states and municipalities start spending stimulus money, the idea is starting to look as counterproductive as it should have looked from the beginning. It is sparking conflict with American allies and, rather than supporting employment at home, the “Buy American” effort could ultimately cost American jobs.

“Buy American” is a terrible idea. One that could make the global recession worse.

NY Times editorial

MP: Amen.

Price Discrimination: Fish, Eyeglasses, Airfares

In an NBER working paper "
A Dynamic Model of Price Discrimination and Inventory Management at the Fulton Fish Market" two Brandeis University economists studied fish-purchasing patterns over 22 weeks and found that white customers usually pay five cents, and sometimes up to 10 cents, more than their Asian counterparts when buying a pound of whiting at the Fulton Fish Market in New York City.

Whenever a buyer approaches a fish stand, a fish dealer’s expert eye scans “his type” and evaluates his price elasticity. As a rule of thumb, Asian customers mean tougher haggling and lower prices; their white counterparts are a quicker sell, yielding higher profits for the vendor.

A firm engaged in price discrimination faces two practical problems. The first is the problem of distinguishing customers who will buy the good at a high price from those who will not.

One solution is said to be used by optometrists. When the customer asks how much a new pair of glasses will cost, the optometrist replies, "Forty dollars." If the customer does not flinch, the doctor adds "for the lenses." If the customer still does not flinch, he adds, "each."

~David Friedman's Price Theory textbook

Round trip airfares, Detroit to Jacksonville, Northwest Airlines:

Wed. July 22 to Wed. July 29, Saturday night stayover: $229

Wed. July 22 to Thurs. July 23, overnight: $469

Tuesday, June 02, 2009

Baltic Dry Index Advances 24 Straight Days in a Row, Rises Today By 11.5%, A 425 Point Gain

From last Wednesday:

BLOOMBERG -- The Baltic Dry Index, a measure of shipping costs for commodities, surpassed 3,000 points for the first time since October, buoyed by Chinese demand for iron ore. The index tracking transport costs on international trade routes rose 222 points, or 7.6%, to 3,164 points, according to the Baltic Exchange today. The measure posted an 18th straight gain, its longest advance in two years.

Such is demand that shippers “are almost pleading” to hire vessels, Stuart Rae, co-managing director of M2M Management Ltd., a hedge fund group that trades freight derivatives and operates carriers, said by phone today. The rally “is being driven by iron ore, by congestion in China, and by a lack” of ships available for hire in the Atlantic.

MP: Less than a week later, the Baltic Dry Index rose above 4,000 today for the first time since September 2008 (see chart above), and it has now posted its 24th consecutive daily gain. Today's 425 point gain represents a 11.5% one-day increase.

Historically High Housing Affordability, Low Mortgage Rates Boost Pending Real Estate Sales

WASHINGTON (MarketWatch) -- Pending sales of existing homes rose for the third month in a row in April, boosted by record-low mortgage rates and special incentives for first-time buyers, a real estate trade group reported Tuesday. The pending home sales index for April rose 6.7% after a 3.2% increase in March, the National Association of Realtors said. The index, based on sales contracts on existing homes, was 3.2% above April 2008.

With mortgage rates hovering near all-time lows, housing affordability has improved, said Lawrence Yun, chief economist for the NAR. Yun expects existing-home sales to rise about 17% by the end of the year to a seasonally adjusted annual rate of 5.48 million.

separate report on housing affordability recently released by the National Association of Realtors indicates that housing affordability remains at near-record levels (see chart above). In April, the Housing Affordability Index (HAI) increased to 174.8, up almost three full points from 171.9 in March, largely because of historically low mortgage rates of 4.96% (April average) and stable home prices and income levels. Except for the 176.9 index reading in January, April's affordability measure of 174.8 was at an all-time, historic record high.

An HAI of 174.8 would mean that the typical household earning the median family annual income of $60,927 in April would have 174.8% of the standard qualifying income level of $38,848 required to purchase a median-priced existing single-family house ($169,800) with a 20% down payment, financing the remaining 80% of the sales price with a 30-year fixed rate mortgage at the April average of 4.96% (monthly payment of $726 for principal and interest).

YTD Double-Digit Returns for Emerging Markets

The chart above shows the year-to-date returns for the emerging markets with double-digit stock market growth, from MSCI.

Women Now Dominate Higher Education at Every Degree Level; The Female-Male Degree Gap Grows

It's college graduation season, and according to data available from the U.S. Department of Education, an estimated 3,092,800 degrees will be granted this academic year (2008-2009) for Associate's degrees (714,000), Bachelor's degrees (1,585,000), Master's degrees (647,000), Professional degrees for MD, DDS and JD (91,000) and Doctor's degrees for Ph.D and Ed.D (55,800).

Of the more than 3 million college degrees for the Class of 2009, women will earn close to 60% of those degrees (1,849,200), or almost 149 degrees for every 100 degrees earned by men.

And it's now official: Women dominate men at every level of higher education, in terms of degrees conferred. Here's the breakdown for graduates of the class of 2009:

Associate's Degrees: 167 for women for every 100 for men.

Bachelor's Degrees: 142 for women for every 100 for men.

Master's Degrees: 159 for women for every 100 for men.

Professional Degrees: 104 for women for every 100 for men.

Doctoral Degrees: 107 for women for every 100 for men.

In fact, the last time men had more degrees than women at any level was the Class of 2006, which had slightly more men than women for both Professional and Doctoral degrees. For the other levels, it hasn't been even close for decades. The last year that men earned more Master's degrees than women was 1984-1985, for Bachelor's degrees it was the Class of 1981, and for Associates degrees it was 1976-1977 when men earned more degrees than women.

For all levels of higher education, women have earned more college degrees than men in every year since the Class of 1982, and the degree gap has widened in every year since then, and is expected to widen in the future through the 2016-2017 year (see chart above).

Capitalism in Russia vs. Marxism in US

Monday, June 01, 2009

Emerging Markets Close at 8-Mo. High; Global Recession's Over; Everybody's Talking Green Shoots

The MSCI Emerging Markets Index closed today above 800 for the first time since late September 2008, reaching an 8-month high of 802.21.

According to Bloomberg:

Emerging-market stocks climbed the most in four weeks after China’s manufacturing expanded for a third month, boosting commodities prices and spurring speculation the global economy is recovering.

“We see green shoots; everybody is talking about them,” Hans Goetti, who oversees about $10 billion as chief investment officer at LGT Bank in Liechtenstein (Singapore), said in an interview on Bloomberg Television.

The MSCI Emerging Markets Index rose 3.8% to 802.21, the most since May 4. The gauge surged 61% since Feb. 27, the steepest advance since its inception in December 1987, on speculation the worst of the global recession is over. The increase outpaced a 32% rally in MSCI’s developed-market stock measure.

Real Disposable Income Grows at Above-Average Rate for 4th Straight Month, 1st Time Since 2007

Real disposable income increased by 3.7% in April from the same month last year, according to a report today from the BEA (data here, see Table 10). This marks the fourth consecutive month of above average growth in real disposable income, and is the first period of above-average growth over a four month period since 2007 (see chart above).

Sunday, May 31, 2009

Bull Market Rally in World Stocks; Largest 3 Month Gain in History of MSCI World Stock Market Index

The MSCI World Stock Market Index increased by 8.62% in May, following gains of 10.91% and 7.24% in April and March (see chart above). Over the last three months, the cumulative compounded gain of 29% in the World Stock Market Index is the largest gain over a 3-month period in the history of the index back to 1970 (full dataset here).

Detroit vs. Pittsburgh: Hockey and Economics

NY TIMES (Jan. 7, 2009) -- This is what life in one American city looks like after an industrial collapse: Unemployment is far below the national average (see chart above, data through April 2009). While housing prices sank nearly everywhere in the last year, they rose here. Wages are also up. Foreclosures are comparatively uncommon.

A generation ago, the steel industry that built Pittsburgh and still dominated its economy entered its death throes. In the early 1980s, the city was being talked about the way Detroit is now. Its very survival was in question. Deindustrialization in Pittsburgh was a protracted and painful experience. Yet it set the stage for an economy that is the envy of many recession-plagued communities, particularly those where the automobile industry is struggling for its life.

“If people are looking for hope, it’s here,” said Sabina Deitrick, an urban studies expert at the University of Pittsburgh. “You can have a decent economy over a long period of restructuring.”

Yet the semisweet spot that Pittsburgh finds itself in was never inevitable. As recently as 2000, it had a higher unemployment rate than Detroit or Cleveland (see chart above). Just as Michigan has traditionally put all its chips on the auto industry, it took Pittsburgh a long time to come to terms with the end of the steel era.

MP: As Detroit faces Pittsburgh for the Stanley Cup, it reminded me of a previous CD post and NY Times article contrasting the two cities in terms of economic development.

There has been a lot of hysteria about the significantly negative impact of a GM bankruptcy on the Michigan and national economies, almost as if Detroit and Michigan could never fully recover from their long dependence on the auto industry. Pittsburgh's comeback from the decline of the domestic steel industry shows that Detroit and Michigan could survive even the unlikely demise of GM, and illustrates that there could be non-automotive life and jobs in Detroit and Michigan even without GM and Chrysler.

As the chart above shows, Pittsburgh had a jobless rate above Detroit's as recently as 2000, and now has an unemployment rate of 6.9% (seasonally adjusted), almost 6.5 percentage points below Detroit's 13.3%, and more than 1.5% below the national average of 8.5% in April.