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.