Monday, July 20, 2009

Traffic Volume Increases For Second Straight Month, For the First Time in Two Years

The Federal Highway Administration reported today that travel on all roads and streets increased by by +0.1% (0.2 billion vehicle miles) in May 2009 compared to May 2008. This was the second consecutive monthly percentage increase in traffic volume compared to the same month in the previous year, following 17 consecutive monthly percentage decreases (see graph above) starting back in November 2007. Further, the monthly increases in both April and May is the first time in almost two years that traffic volume has increased two months in a row.

Green shoot? Mustard seed?

Leading Economic Index Signals End of Recession

NEW YORK (AP) -- More plans to build homes, higher stock prices and fewer people filing first-time claims for jobless aid sent a private-sector forecast of U.S. economic activity higher than expected in June. It was the third straight monthly increase for the New York-based Conference Board's index of leading economic indicators, and another sign pointing toward the recession ending later this year.

The index is meant to project economic activity in the next three to six months. If these conditions continue, "expect a slow recovery this autumn," said Conference Board economist Ken Goldstein.

The Conference Board's leading indicators index bottomed in March after peaking in July 2007 (see chart above). The decline accelerated last fall after investment bank Lehman Brothers collapsed and credit markets froze.

"We're now getting data which points to stabilization," said Josh Shapiro, chief U.S. economist at research firm MFR Inc. "The overall signal they're sending is the slide in economic activity is poised to end. The jury is still very much out in terms of what happens after that."

MP: The three consecutive increases in the second quarter (April, May and June) of 2009 is the first time in four years of three straight monthly increases in the Index of Leading Economic Indicators. And the 3.06% three-month increase in the Leading Index from March (97.9) to June (100.9) 2009 is the largest percentage increase for a three-month period since the 3.44% increase from October 2001 to January 2002 at the tail end of the 2001 recession. There was a similar 2.65% three-month increase from April to July of 1991 that signalled the end of the 1990-1991 recession. It sure looks like the Leading Economic Index is suggesting that the recession is over.

Do As I Say/Legislate, Not As I Do

WALL STREET JOURNAL -- Last Tuesday, the Senate health committee voted 12-11 in favor of a two-page amendment courtesy of Republican Tom Coburn that would require all Members and their staffs to enroll in any new government-run health plan. Yet all Democrats -- with the exceptions of acting chairman Chris Dodd, Barbara Mikulski and Ted Kennedy via proxy -- voted nay.

In other words, Sherrod Brown and Sheldon Whitehouse won't themselves join a plan that "will offer benefits that are as good as those available through private insurance plans -- or better," as the Ohio and Rhode Island liberals put it in a recent op-ed. And even a self-described socialist like Vermont's Bernie Sanders, who supports a government-only system, wouldn't sign himself up.

Of course, they also qualify now for generous Congressional coverage. Most Americans won't have the same choice.

Quote of the Day II: Government is Not Compassion

The single most damaging error of the modern age is the misperception of government as an agency of compassion. As a replacement for the "divine right of kings," this misperception has, for those in power, been an astonishing success. For the rest of mankind, it has frequently been a disaster beyond imagining.

Government is nothing more than structured, widespread coercion, and the idea that it can implement compassion for us by force is simply a vile and cunning lie. It is cunning because people are primed and willing, even desperate, to believe it. It is vile because government allows, facilitates, and encourages mass murder, widespread torture, needless famine, and every form of tyranny. No other tool than coercive government does this.

~Glen Allport (Thanks to an anonymous commenter.)

Taxes, Trade and Healthcare: Europe vs. USA

1. WALL STREET JOURNAL -- On present trends, most of Europe will soon have lower income tax rates than most of America. And now the European Union is stealing another competitive march on Washington, this time on a free trade deal with the world's 13th largest economy, fast-growing South Korea. Last week Brussels and Seoul finished the outline of a new trade agreement, and the two sides will now write up the technical language to codify it. As for the pending U.S.-Korea trade agreement, Congress has done . . . nothing.

2. AMERICAN THINKER -- Ironically, as we're moving toward having our government completely control health care, countries with government-run health care are moving in the opposite direction. Almost every European country has introduced market reforms to reduce health costs and increase the availability and quality of care. The United Kingdom has proposed a pilot program giving patients money to purchase health care. Why is this being done? According to Alan Johnson, Secretary for Health, personal health budgets "will give more power to patients and drive up the quality of care" (The Guardian, 1/17/09). It's a lesson we all should learn before considering how to improve our health care system.

Quote of the Day: Mark Twain

Don't go around saying the world owes you a living. The world owes you nothing. It was here first.

~Mark Twain

Sunday, July 19, 2009

NY Fed Model: No Chance of Recession in 2010, Economic Recovery Is Probably Already Underway

A few weeks ago, the New York Fed just released its latest "Probability of U.S. Recession Predicted by Treasury Spread," with data through June 2009, and the Fed's recession probability forecast through June 2010 (see chart above, click to enlarge). The NY Fed's model uses the spread between 10-year and 3-month Treasury rates (3.54% spread in June, the highest since May 2004) to calculate the probability of a recession in the United States twelve months ahead.

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 chart above and chart below). For June 2009, the recession probability is only 1.27% and by June 2010 the recession probability is only .06%, the lowest level since May 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, the probability that the recession will continue into 2010 is close to zero. Further, the New York Fed's Treasury spread model suggests that an economic recovery is probably already underway.

Did Global Warming Cause the Global Slowdown?

Hot Climates May Create Sluggish Economies

NATIONAL PUBLIC RADIO -- New research suggests that higher temperatures can have a damaging effect on the economies of poor countries. The study, by economists at the Massachusetts Institute of Technology, found that in years with higher temperatures, poor countries experienced significantly slower economic growth.

Ben Olken, an associate professor of economics at MIT, and his colleagues wanted to examine the temperature connection more closely. They decided that instead of comparing one country to another, they would look within countries. Did a hot year mean slower economic growth? The answer appears to be yes. They found that for poor countries, an increase in annual average temperature by 1 degree centigrade corresponded to a 1.1% drop in per-capita gross domestic product.

It's "a huge effect," Olken says. The difference between a country that's in recession and one that is buzzing along amounts to a 3% shift in GDP. "So, 1 degree explaining a 1.1% shift is a huge effect of temperature."

Markets In Everything: Photos of Frost on a MN Window in Jan. When It's 30 Degrees Below Zero

Here's the window of an old house in South Minneapolis at dawn in January 2009 when it was 35 degrees below zero:
Here are some close-up photos of the frost on the window highlighting the natural beauty of early morning sunlight streaming through the frost, captured from inside the house with a standard digital camera using the zoom feature, by Minneapolis photographer and musician Marcus Wise:

For more information go to the Dew Divine website.

Should The Official Poverty Guidelines Be Revised?

According to the U.S. Census Bureau:

Poverty thresholds were originally derived in 1963-1964, using: a) U.S. Department of Agriculture food budgets designed for families under economic stress, and b) Data about what portion of their income families spent on food. Poverty thresholds are updated annually for inflation using the Consumer Price Index for All Urban Consumers (CPI-U).

On the Adam Smith Institute blog, Tim Worstall writes:

There's a technical point that needs to be made about U.S. poverty figures. To remind you, the U.S. measures poverty entirely differently from every other nation: they took the necessary food budget in the early 1960s, tripled it and said that this was the poverty level (everyone else is using 60% of median household income) and they've simply updated it for inflation ever since.

What they haven't done is update it for the changes in portions of spending on different goods and services. We can thus say that the position of the U.S. poor, those on or below this poverty level (which, just to remind everyone again, is before the impact of poverty alleviation measures, everyone else counts after whatever we do to reduce poverty), is rather better than the simple stated figures suggest. For food has declined massively in price and thus that inflation adjusted standard goes further than it used to.

MP: The top chart above shows graphically that when the official U.S. poverty guidelines were established in 1963, total spending on food (at home and away from home) as a share of disposable income was 16%, almost double the 9.6% level in 2008 (data here). And for food consumed at home, the share of income spent on food in 1963 (12.5%) was more than double the share of income for food at home in 2008 (5.6%).

In that case, both the number of Americans officially below the poverty level and the percent of Americans living in poverty (see graph below) are overstated, since the official poverty thresholds apparently do not take into account the significant increases over time in food affordability.

Perhaps we have won the "War on Poverty," but not through massive government spending on welfare programs, but through technological improvements and increases in farm productivity leading to lower food prices?

Campus Hostility Towards Political Diversity at UO

The University of Oregon (UO), where I study journalism, invested millions annually in a diversity program that explicitly included "political affiliation" as a component. Yet, out of the 111 registered Oregon voters in the departments of journalism, law, political science, economics, and sociology, there were only two registered Republicans.

A number of conservative students told me they felt Republican ideas were frequently caricatured and rarely presented fairly. Did the dearth of conservative professors on campus and apparent marginalization of ideas on the right belie the university's commitment to providing a marketplace of ideas?

In my column, published in the campus newspaper The Oregon Daily Emerald June 1, I suggested that such a disparity hurt UO. I argued that the lifeblood of higher education was subjecting students to diverse viewpoints and the university needed to work on attracting more conservative professors.

I also suggested that students working on right-leaning ideas may have difficulty finding faculty mentors. I couldn't imagine, for instance, that journalism that supported the Iraq war or gun rights would be met with much enthusiasm.

What I didn't realize is that journalism that examined the dominance of liberal ideas on campus would be addressed with hostility.

~From the Christian Science Monitor commentary, "Nearly All My Professors Are Democrats. Isn't That A Problem?"

From the original article in the UO student newspaper:

There needs to be movement - along with intellectual consistency - on the issue of political diversity by faculty and administrators. If queried, most professors would likely agree that a university with only 2-percent Democrats would be inadequate. However, when the discrepancy is in their favor, they appear uninspired to act.

As a student, I want a campus full of professors not only from different ethnic and racial backgrounds, but different political backgrounds as well. I want Democrats, Republicans, Libertarians, Marxists, Independents and anyone with a halfway decent idea that doesn't incorporate hate. That's what true diversity means to me. I want that more than free football tickets, a new basketball arena or pretty much anything else a University could offer. In exchange for paying $20,000 in tuition a year, I think I deserve it. Don't you?

HT: Mike Munger

Volatility, Financial Conditions Returning to Normal

From Wikipedia,

VIX is the ticker symbol for the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. A high value corresponds to a more volatile market and therefore more costly options, which can be used to defray risk from volatility. If investors see high risks of a change in prices, they will require a greater premium to insure against such a change by selling options. Often referred to as the fear index, it represents one measure of the market's expectation of volatility over the next 30 day period.

MP: The chart above displays the daily history of the VIX back to July 1, 2008 (data here), showing that the index of market volatility fell below 25% on Friday for the first time since early September 2008, and reached a fresh 10-month low.

The chart below shows the Bloomberg U.S. Financial Conditions Index, which "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."

The chart below displays the Financial Conditions Index daily from May 1, 2008 through Friday (July 17, 2009), and shows that the index is approaching the same levels as May 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 9 months. We're now getting back the same financial conditions that prevailed more than a year ago.

Saturday, July 18, 2009

UK Medical Story With a Happy Ending, In the U.S.

LONDON DAILY MAIL -- Watching Meg suffer was too much for her mother. Helen decided to find out as much as she could about brain tumours on the internet.

When she read about Professor Black and his work at Boston's Brigham and Women's Hospital, it offered the first ray of hope. His hospital is one of ten in America with the resources and expertise to perform MR-guided brain surgery.

But before making a final decision, Meg was referred for a second opinion to London
's National Hospital for Neurology and Neurosurgery - one of Britain's leading centres. "Opting for surgery in America was expensive - £50,000," says Meg. "I needed to be sure no British surgeon could offer me the same hope."

Unlike in Southampton, the London consultant recommended surgery. But he admitted that Meg stood a far better chance in the U.S. as the equipment was so superior.

HT: Synthstuff

The Most Energy Efficient Economy in U.S. History

The chart above (click to enlarge) shows the increasing energy efficiency of the U.S. economy, using data from the Energy Information Administration, updated recently through 2008. As recently as 1970, it required 18,000 BTUs of energy for each real dollar of GDP produced, and by 2008 the energy required per dollar of real GDP has been reduced by more than 50%, to only 8,520 BTUs per real dollar of GDP. So the U.S. economy has more than doubled its overall energy efficiency in only 38 years.

Bottom Line: The U.S. economy has never been more energy efficient than it is today, and it just keeps getting more and more efficient every year as we find ways to produce more and more output with less and less energy. Amid all of the gloom and doom, this seems like something to celebrate. Over time, we're not becoming energy gluttons, we're actually becoming energy misers.

Cartoons of the Day: The Waiting Game

Michael Ramirez

Friday, July 17, 2009

Dennis Gartman: The Recession Is Now Over

The recession has ended. In light of the spike in jobless claims AND in light of the recent upward turn in the Ratio of the Coincident to Lagging Indicators, we are making this statement as clearly and as unequivocally as we are able to make one. The recession is over. The worst of the economic news shall all soon be behind us.

Make no mistake about this, however, it will be months… even perhaps a year or more… before the NBER meets and officially decides that the recession has ended.

From today's "
The Gartman Letter" (subscription required).

MP: See
related post CD here on the typical 20-21 month lag for the NBER to report that a recession had officially ended, meaning that if the recession is now over, it might not be official until 2011.

Long-Awaited End of Home Building Bust is Here

From today's Census Bureau report on New Residential Construction:

HOUSING STARTS: Privately-owned housing starts in June were at a seasonally adjusted annual rate of 582,000. This is 3.6% above the revised May estimate of 562,000, but is 46% percent below the June 2008 rate of 1,078,000. Single-family housing starts in June were at a rate of 470,000; this is 14.4% above the revised May figure of 411,000.

MP: Single-family housing starts have increased for the last four months in a row (March, April, May and June), the first four consecutive month increase for single-family starts in four years (see shaded areas in chart above). This four-month positive trend follows 9 consecutive monthly declines in single-family starts going back to June of last year, and declines in 19 out of the previous 20 months going back to July of 2007.

According to Brian Wesbury and Robert Stein: "We are now witnessing the long-awaited end of the bust in home building and the birth of what will be a substantial recovery in residential construction over the next few years."

Chicago Needs Jobs. Wal-Mart Wants to Provide Hundreds of Jobs. So What's The Problem?

Chicago needs new jobs. Wal-Mart wants to provide jobs to Chicago. Alderman Howard Brookins wants Wal-Mart in his 21st Ward. Yet the company and the alderman face huge resistance from the City Council to a proposal for a Wal-Mart Supercenter on the South Side, at 83rd Street and Stewart Avenue just west of the Dan Ryan.

What's there now? A vacant lot. A vacant lot where no one is working. The construction of that store on that vacant site would put hundreds of Chicagoans to work. Once the store was opened, at least 500 people would get jobs.

What's the holdup? For Chicago politicians, Wal-Mart jobs are the wrong kind of jobs. They're not union jobs.

~From today's
Chicago Tribune editorial

It's A Watershed Moment for Economics Bloggers; Econ Has Never Been So Captivating, Relevant

From the WSJ article "The New Stars of the Blogosphere":

Americans trying to understand the nail-biting financial trauma of the past several months are flocking by the millions to a surprisingly lively source of enlightenment: blogs written by economists. Such blogs are thriving in this recession, driven by intense interest from policymakers, investors, academics and people like Zina Poletz, a Minneapolis public-relations executive who says she had little interest in economics before the financial crisis intensified last fall. “I never thought I’d be sitting up late at night reading what Ben Bernanke thinks, but now I do,” she says.

For many people, economics has never seemed so captivating, or so relevant. The enormous appetite for information and guidance right now is hardly a surprise: Even those with a basic knowledge of supply and demand have struggled to keep tabs on the global downturn.

The result is a watershed moment for economics bloggers, ranging from academics to armchair economists, who are all too happy to help readers fill in the blanks—or find a place to vent their frustrations. Traffic to the top sites, such as Marginal Revolution, Freakonomics and the blogs from academics such as Paul Krugman, Greg Mankiw and Brad DeLong, surged anywhere from 80% to 250% from July to September 2008 as the financial crisis intensified, according to, a Web site that measures Internet traffic. The most popular blogs can attract as many as 50,000 to 100,000 page views a day.

MP: The chart above (click to enlarge) tracks daily unique visitors to Greg Mankiw's blog (green line) and Carpe Diem (blue line) over the last 12 months using the site comparison feature at's website (free subscription may be required). The traffic trend confirms the significant increase in traffic last fall for both blogs, which actually sent blog traffic at Carpe Diem above Greg Mankiw for a few days in early November.

Thursday, July 16, 2009

Which Cities Charge the Most for Parking?

It's more expensive to park a car in Amsterdam ($805) or London ($1,020) for a month (see chart above) than to rent an apartment in Atlanta GA ($753).

Markets in Everything: College Classes at Midnight

CHRONICLE OF HIGHER EDUCATION -- At a time of night when many people are hitting the sack, a number of Bunker Hill Community College students will be hitting the classroom this fall. To accommodate working adults and open more class times for its growing student population, the Massachusetts college will offer two courses that run from 11:45 p.m. to 2:30 a.m.: “Principles of Psychology,” on Tuesdays, and “College Writing I,” on Thursdays. Both are three-credit courses.

College officials chose the midnight time slot for people who get off work late and have to be up early with their children. (Which makes you wonder if sleep deprivation will be among the topics covered in the psych course.) Like many community colleges during the recession, Bunker Hill has seen record enrollments as people return to college to advance their education. The burgeoning enrollment has filled all available classrooms during the college’s normal seven-day schedule.

Spending on Food Reaches A New Historical Low; And It's Nothing At All Like The Great Depression

The chart above is based on data from the USDA showing "Food expenditures by families and individuals as a share of disposable personal income," from 1929 to 2008 (total spending for both "food at home" and "food away from home").

In the entire history of the U.S., it's only been in the last eight years that the percent of income spent on food for Americans was in single digits - since 2000 it's been below 10%. In all previous years, spending on food was in double-digits, and in most years from 1929 to 1952 it was above 20%. Consider that in 1932, spending on food at home took almost 22% of disposable income, compared to the record low of only 5.6% in 2008. Food has never been more affordable than today, as a share of income.

In 2008, despite the "Great Recession," total spending on food as a share of disposable personal income fell to 9.6%, reaching the lowest level ever recorded in U.S. history. And since spending on food as a share of income is lower in the U.S. than in any other country, the 9.6% share of income spent on food in the U.S. for 2008 is probably the lowest ever in the history of the world.

This amazing trend in lower food prices as a percent of income reflects first of all the relentless and significant improvements in the production and distribution of food over time, and doesn't even take into account the significant improvements in the quantity and quality of most food products available for today's Americans compared to previous generations (whole, 2% 1%, 1/2%, and skim milk are available for today's consumers vs. whole milk only in the past as just one example).

And second of all, Americans are more than 7.7 times wealthier today compared to 1933 based on per-capita real GDP in constant 2004 dollars ($5,653 in 1933 vs. $43,716 in 2008), see chart below. With higher real incomes and lower food prices, it's not surprising that spending on food as a share of income is at an all-time low. And it also makes the comparisons of today's economic conditions and our current standard of living to the conditions during the Great Depression pretty silly, doesn't it?

The Provider-Consumer Disconnect = High Prices

Today there is a disconnect between providers and consumers. Almost all health insurance is covered by third parties--either insurance companies or governments--so patients rarely know what most health care services cost. If you go to a hospital and ask about prices, the staff's immediate reaction is that you must be uninsured. Why else would you want to know what something costs? Yet in just about every other aspect of our commercial lives the price of things is known.

No wonder health care doesn't experience the kind of productivity gains found elsewhere. For example, the cost of food as a proportion of one's income is a mere fraction of what it was decades ago (see chart above). Twenty years ago cell phones were bulky and expensive; today they have become cheap virtual computers with easy access to the Internet. They even take pictures and videos. There are 4 billion cell phones in use around the world.

In 1900 the automobile was a toy for the rich and cost the equivalent of about $100,000 today. Henry Ford's moving assembly line turned autos into something that any working person could afford.

We could attain similar and ongoing miracles in health care. We are already seeing some in a few areas. Conventional Lasik eye surgery costs a third of what it did ten years ago. And there has been virtually no inflation in the prices of cosmetic surgery, even though there have been enormous technological advances, and the demand for these procedures has increased sixfold since the early 1990s.

Special hospital facilities in India, Thailand, Singapore and elsewhere that engage in medical "tourism" have infection rates a fraction of those found in most U.S. hospitals. These positive results are driven by the fact that patients write the checks and are thus fully conscious of the costs, as well as by the fact that providers are under pressure to make their offerings more enticing and affordable.

Genuine free-market reforms in health care will slash the number of the uninsured and lead to the same kinds of innovations and efficiencies that are experienced in most of the rest of the economy.

~Steve Forbes (HT to Mark Dodson)

India's 1st Wal-Mart Draws Excitement, Not Protest

WASHINGTON POST -- The arrival of the world's largest retailer in one of the world's largest marketplaces has brought more praise than protest. In recent weeks, crowds have swarmed the store, located on the Grand Trunk Road, the ancient and fabled trade route that stretches across India and into Pakistan.

They all want to get a glimpse of the warehouse-like store and its neatly organized bulk packages of sugary fruit juice, flat-screen televisions and tubs of Indian sweets. Although Wal-Mart has occasionally been the subject of controversy in the United States, the store here -- BestPrice Modern Wholesale, a joint venture with India's Bharti group -- has drawn excitement and wonder.

To protect its smaller merchants, the Indian government has ordered that Wal-Mart sell only to wholesalers, as well as business owners and their families and friends, a move that has eased the tensions among the merchant associations and left-wing political parties. Business owners are allowed to grant access to the store to up to three friends and family members, and many others are clamoring to borrow membership cards for a chance to benefit from the low prices.

Recession is Over, Let the Jobless Recovery Begin!

In this season of doubt, I'm prepared to declare that the recession is really, most probably over.

Why? Well, it's not because the economists surveyed by the Wall Street Journal believe it'll end in this quarter. (These guys wouldn't know an economic inflection point if it hit them upside the head. All through 2008, when the economy was contracting, they projected growth for the year.) No, two of the best and most objective forecasters, who are not connected to investment banks or to the CNBC noise machine, have recently called the upturn. Macroeconomic Advisers, the St. Louis-based consulting firm that compiles a monthly GDP index, reported to its clients Monday that while second-quarter GDP was tracking at negative 0.1 percent (recession), the third quarter was tracking at 2.4% growth.

The folks at the Economic Cycles Research Institute agree enthusiastically. It's not because they've detected green pea shoots in Central Park. Rather, it's because we've seen the three P's, says Lakshman Achuthan, managing director at ECRI, which has been studying business cycles for decades and was one of the few outfits to call the last two recessions with any degree of accuracy.

~Daniel Gross in Newsweek

Is This "The Spike?" It's Beginning To Look A Lot Like The End of the Recession in 2001

FT.COM -- The number of US workers claiming unemployment benefits fell to the lowest level since January last week, as the pace of job cuts eased and car companies shifted the timing of their layoffs. New jobless claims fell by 47,000 to 522,000 in the week ending July 11, according to the Department of Labor. The less volatile four-week average of new claims also declined last week, falling by 22,500 to 584,500 (see chart above).

MP: The 22,500 drop in the four-week average of new jobless claims was almost the largest weekly decline on record - there have only been two previous larger declines in history (back to 1987 according to Dept. of Labor records): a 41,500 decrease in 1992, and a 26,250 decline in January of this year. The chart above also shows a strong similarity between the 80,000 decline in jobless claims (four-week average) from the peak in 2001 and the 74,2500 decline from the early April 2009 peak.

Could this be "The Spike" that Dennis Gartman has been looking for? From today's "The Gartman Letter":

To this we add the notion that last week’s jobless claims number might well have been “The Spike” downward we’ve been commenting upon and awaiting for the past several months. As we’ve written about here countless times over the past several years, “claims” turn down almost spot on the turn upward in economic activity. Its history is almost as uncanny as is that of the Ratio of Coincident to Lagging Indicators.

Last week’s “claims” were somewhat suspect given that they were compiled during the week of the July 4th holiday, so we shall look at today’s claim’s with rather heightened anticipation. If they remain weak and are not seasonally adjusted away in some fashion we shall be much impressed. So too should everyone else. If claims are still below 600,000, then the “spike-iness” of last week’s number will obtain, and when aligned with the recent turn upward in the Ratio of Coincident to Lagging Indicators shall be reasonable proof-positive that the recession’s end is hard upon us.

China Will Lead Global Economy Out of Recession

BEIJING (WALL STREET JOURNAL) -- China's government has turned around its economy far faster than most thought possible, as officials said Thursday that growth accelerated to 7.9% in the second quarter. Even if the surge moderates in coming quarters, many analysts say China will very nearly meet its target of an 8% expansion for all of 2009. In the first quarter, gross domestic product grew 6.1% from a year earlier.

The Shanghai stock market's benchmark index has gained 75% this year (see chart above) as the Chinese outlook has improved, with factory output, bank lending and commodity imports all continuing to accelerate in the past few months. Now, authorities face increasing questions about how long this growth can last, and how quickly the world's third-largest economy can be weaned off its massive stimulus before longer-term problems take root.

"China will be among the first countries to lead the global economy out of this recession," said Hans Timmer, director of the World Bank's economic forecasting department. Developing countries such as China are becoming a bigger driver of global growth as U.S. households cut back consumption and boost savings, he said.

China's government only reports year-on-year growth estimates. But when measured in the same terms as other major economies—an annualized quarter-on-quarter comparison—China's growth in the second quarter could be on the order of 15%, some private economists estimate.

Wednesday, July 15, 2009

Real Estate Market Recovery in Southern California: Home Sales Increase for 12th Straight Month

La Jolla, CA---Southern California home sales rose in June to the highest level in 30 months as the number of deals above $500,000 continued to climb. June’s sales gain, plus another rise in the region’s median sale price, indicate buyers responded to price cuts on mid- to high-end homes and found it easier to secure financing for pricier abodes, a real estate information service reported.

A total of 23,262 new and resale houses and condos closed escrow in San Diego, Orange, Los Angeles, Ventura, Riverside and San Bernardino counties last month. That was up 12% percent from 20,775 in May and up 29% from a revised 18,032 a year ago, according to San Diego-based MDA DataQuick (see chart above).

Sales have increased year-over-year for 12 consecutive months.

June’s sales were the highest for that month since 2006, when 31,602 homes sold, but were 17.7 percent below the average June sales total since 1988, when DataQuick’s statistics begin. June sales peaked at 40,156 in 2005 and hit a low last year.

The median price paid for all new and resale houses and condos sold in the Southland last month was $265,000, up 6.4% from $249,000 in May but down 26.4% from $360,000 a year ago. It was the second consecutive month in which the median rose on a month-to-month basis. Before May’s 0.8% increase over April, the median hadn’t risen from one month to the next since July 2007.

MP: All signs point to the beginnings of a recovery in the Southern California real estate market.

Speaking Up For Poorest, Least Skilled Americans

WALL STREET JOURNAL -- Here's some economic logic to ponder. The unemployment rate in June for American teenagers was 24% (see chart above), for black teens it was 38%, and even White House economists are predicting more job losses. So how about raising the cost of that teenage labor?

Sorry to say, but that's precisely what will happen on July 24, when the minimum wage will increase to $7.25 an hour from $6.55. The national wage floor will have increased 41% since the three-step hike was approved by the Democratic Congress in May 2007. Then the economy was humming, with an overall jobless rate of 4.5% and many entry-level jobs paying more than the minimum. That's a hard case to make now, with a 9.5% national jobless rate and thousands of employers facing razor-thin profit margins.

If Congress were wise and compassionate, it would at least suspend the wage hike for one or two years until the job market recovers. We know this Congress won't do that, but someone has to speak up for the poorest, least skilled Americans.

Empire State Survey Suggests Recession is Ending

NEW YORK FED-- The Empire State Manufacturing Survey indicates that conditions for New York manufacturers were flat in July. The general business conditions index increased to a level close to zero, rising 9 points, to -0.6. The new orders index rose above zero for the first time in several months, and the shipments index also climbed into positive territory. The inventories index slipped to a record-low -36.5. The prices paid index rose above zero for the first time since November, while the prices received index held below zero. Employment indexes remained well below zero. Future indexes continued to be relatively optimistic about the six-month outlook, but were somewhat less buoyant than in June. The capital spending index fell several points, but remained above zero.

MP: The four-month increase of 37.7 points between March and July in the General (Current) Conditions Index is the largest increase over a four-month period since the 33.4 point increase between October 2001 and March 2002, which signalled the end of the 2001 recession.

Tuesday, July 14, 2009

Globalization Has Been Very Good for Wal-Mart

Interesting Wal-Mart Facts

1962: Wal-Mart opens its first store in Rogers, Arkansas.

Wal-Mart opens its first international store in Mexico.

Wal-Mart operates 3,720 international units and 4,275 stores in the U.S., for a total of almost 8,000 stores worldwide.

In other words:

1. Wal-Mart grew from 1 store in 1962 to 8,000 stores worldwide 47 years later (2009), for an annual compounded growth rate in new Wal-Mart stores of 21.1%.

2. Wal-Mart's international operations grew from 1 store in 1991 to 3,720 stores 18 years later, which is an annual growth rate of almost 58%.

3. Wal-Mart went from a 100% domestic company in 1991 to a company with 46.5% of its stores outside the U.S. in 2009.

The Case Against College

President Barack Obama has declared that his administration aims to make college affordable to everyone by greatly expanding government aid to middle class families. The Washington Post says that Obama's higher education proposals, which include creating a brand new Pell Grant entitlement, "could transform the financial aid landscape for millions of students while expanding federal authority to a degree that even Democrats concede is controversial." But what if President Obama has it backwards? What if America is sending too many people to college?

A recent study found that "Nationally, four-year colleges graduated an average of just 53% of entering students within six years." If 40 percent of students who enter college drop out before graduation and over 50 percent of students take six years to graduate, perhaps Obama is focusing on the wrong issue.'s Michael C. Moynihan sat down with Rep. Paul Ryan (R-Wis.) and the American Enterprise Institute's Charles Murray, author of the recent book Real Education, to analyze how Obama's higher-education plans will impact the economic and cultural future of the United States. video here (Thanks to Russell Harris).

MP: Maybe there is an analogy here: just like the government contributed to (or largely caused) the mortgage tsunami, the housing bubble, and the global financial crisis because of its obsession with home ownership, it might also be likewise contributing to growing problems in higher education because of its obsession with college affordability and college enrollments?

In other words, just like government policies and easy credit "turned good renters into bad homeowners," it might also be "turning good high school graduates into bad college students."

You Can Usually Only Equalize Downwards

The problem with trying to equalize is that you can usually only equalize downward.

If you are going to try to equalize the chances of women getting jobs as firefighters then you are going to have to lower the physical requirements of height, weight and upper body strength. That means that you are going to have more firefighters who are not capable of carrying an unconscious person out of a burning building.

If you are going to have these lower physical requirements be the same for both women and men, that means that you are not only going to have women who are not capable of carrying someone out of a burning building, you are also going to have men who are likewise incapable of carrying someone to safety.

Most activities do not exist for the sake of equality. They exist to serve their own purposes-- and those purposes are undermined, sometimes fatally, when equality becomes the goal.

~Thomas Sowell

Universal Car Care

What would happen if we had universal car care? Find out in this video.

HT: Division of Labor

Monday, July 13, 2009

Taiwan's Educational, Employment Gender Gap; The Mancession Goes Global

TCS DAILY -- A major problem facing Taiwan is that boys there do not perform nearly as well as girls in reading. As an educational researcher, I have been trying to understand why.

Research shows that students who view reading as a pleasurable activity tend to read more frequently. Research also shows that reading more frequently is one of the best ways to improve reading skills. It's not surprising, then, that the average reading score for Taiwanese fourth graders on the most recent Progress in International Reading Literacy Study was 13 points higher for girls (compared to boys), and the average reading score for Taiwanese 15-year-olds on the most recent PISA was 21 points higher for girls (than for boys).

Since 1998, more Taiwanese women have been enrolled in higher education than men. The proportion of educated women has increased each year while the proportion of educated men has decreased. The research is clear: greater reading skills equates to greater success in school. The consequences are also clear: if something isn't done to improve boys' reading skills in Taiwan, then fewer and fewer boys will continue on to higher education.

As jobs that require little education have increasingly diminished, more and more men have become unemployed. Since 1996, male unemployment rates in Taiwan have been significantly higher than those of females. This unemployment rate gender gap has widened over the years and is partially responsible for Taiwan's unemployment rate hitting a record high this year (see chart above).

MP: The
gender degree gap and the mancession are apparently not isolated to the U.S., they are both becoming global phenomena.

Want 30% Savings for Healthcare Costs? Here's How

More and more companies are putting health care clinics in the workplace. That can mean big savings. Some studies show businesses can cut health care costs by up to 30%.

~National Public Radio

MP: More than 1,000 companies, like Rockwell Aviation (featured in the NPR story), offer on-site health care clinics, and they are expected to serve 10-15% of the working population within the next few years. So while President Obama and politicians in Washington dream up the latest grandiose government health care reform to address rising healthcare costs, the most effective, affordable and convenient healthcare solutions might be right on location at your workplace health care clinic.

Why Isn't The Stimulus Stimulating? LAGS

The problem is that Obama was always much too optimistic about how quickly stimulus spending could have an effect. As I warned in a January column, it takes far more time for it to impact the economy than most people think. Moreover, not all government spending is necessarily stimulative, and the parts of the stimulus package that provide real stimulus are among the slowest to come online.

According to CBO Director Douglas Elmendorf, by the end of fiscal year 2009, which ends on Sept. 30, about a third of the least stimulative spending will have been spent vs. only 11% of the highly stimulative spending. Even at the end of fiscal year 2010, we will have spent only 47% of the highly stimulative spending. By the end of fiscal year 2011, more than a quarter of the stimulative spending will still remain unspent.

Some years ago, I did a study of every anti-recession program in the postwar era. I found that they invariably impacted on the economy too late to really help. There were many reasons for this. First, economists were slow to see a recession coming and often didn't see one at all until we were already well into it.

Then it took time to convince policymakers to do something and get legislation enacted. By the time a countercyclical program was signed into law, the recession was always over. Consequently, the stimulus stimulated when the economy was already on the upswing. The result was that these programs stimulated inflation more than they stimulated jobs and growth.

Many years ago John Maynard Keynes warned against using public works for stimulus for precisely this reason--they are too hard to reverse once the need for them has passed. With many economists already warning about inflation coming back in the near future, the ultimate legacy of the stimulus bill may be to make it harder to tighten fiscal policy when it will be needed.

Bottom Line: Most of the fiscal stimulus spending will likely impact the economy when it isn't really needed, i.e. after the economy has already started to recover. If we have positive economic growth yet this year in the third (.60% real GDP) and fourth quarter (1.9%) like economists are predicting (WSJ survey, see chart above), and 2.6% real GDP growth next year, the fiscal stimulus will be stimulating an economy in recovery, i.e. an economy that doesn't need stimulus.

As Bruce Bartlett points out in
in this article, there has not been a successful stimulus package since WWII that actually provided stimulus with the correct timing. Because of the lags associated with: a) recognizing the economy was slowing down, b) designing and legislating a fiscal stimulus program, and c) waiting for the fiscal stimulus to have an impact on job creation, etc. there has never been a successful fiscal stimulus, at least in terms of successfully impacting an economy at the time when it is most needed.

Sunday, July 12, 2009

Michael Moore vs. John Stossel

LOS ANGELES Michael Moore's latest documentary now has a title - and a theme that resonates with recession-weary audiences. Moore's look at the consequences of big business will be called "Capitalism: A Love Story." The documentary is due in theaters Oct. 2. Distributor Overture Films said "Capitalism" examines the disastrous effects of corporate profiteering.

"It will be the perfect date movie," Moore said. "It's got it all - lust, passion, romance and 14,000 jobs being eliminated every day. It's a forbidden love, one that dare not speak its name. Heck, let's just say it: It's capitalism."

John Stossel responds: "Michael Moore Gets It Wrong."

Minimum Wage, Maximum Stupidity

The only way to increase wages is to increase worker productivity. If wages could be raised simply by government mandate, we could set the minimum wage at $100 per hour and solve all problems. It should be clear that, at that level, most of the population would lose their jobs, and the remaining labor would be so expensive that prices for goods and services would skyrocket. That's the exact burden the minimum wage places on our poor and low-skilled workers, and ultimately every American consumer.

Since our leaders cannot even grasp this simple economic concept, how can we expect them to deal with the more complicated problems that currently confront us?

~Peter Schiff

Saturday, July 11, 2009

Energy Expert: Oil Will Fall to $20 a Barrel

Respected energy economist Philip Verleger makes case that oil will fall to levels not seen in over a decade.

HT: Craig Newmark

Consumer Spending

From Visual Economics, a graphical representation appears above (click to enlarge) of Consumer Expenditures in 2007, using data from the Bureau of Labor Statistics.

Note that total spending on food ($6,133), clothing ($1,881) and housing ($16,920) represented 50% of consumer expenditures and 30% of income before taxes in 2007. In 1997 by comparison, 51.1% of consumer expenditures were spent on food, clothing and housing, and 44.6% of income before taxes was spent on food, clothing and housing (data here).

New World Currency?

July 10 (Bloomberg) -- Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin (pictured above) of a “united future world currency.” “Here it is,” Medvedev told reporters today in L’Aquila, Italy, after a summit of the Group of Eight nations. “You can see it and touch it.”

The coin, which bears the words “unity in diversity,” was minted in Belgium and presented to the heads of G-8 delegations, Medvedev said. The question of a supranational currency “concerns everyone now, even the mints,” Medvedev said. The test coin “means they’re getting ready. I think it’s a good sign that we understand how interdependent we are.”

Mpls-Area Home Sales Increase 12th Straight Month

Update on this CD post, from today's Star Tribune article "A Few Good Signs for Housing" (print edition headline):

Pending home sales in the Twin Cities metro area in June were up 33.7% from this time last year, to 5,183. That number was the highest for the month of June since 2005, and marked 12 consecutive months of year-to-year increases, the Minneapolis Area Association of Realtors reported Friday.

In the Twin Cities, the housing market is showing slow improvement. Closed sales for June were up 20%, but more than 40% of those sales were the result of foreclosures or "short sales," where the lender agrees to a sale for less than the amount of the mortgage. Still, the percentage of home sales that were the result of foreclosures or short sales was down from 59.7% in January.

"The fact that short sales and foreclosures are coming down as a percent of total home sales is a good sign that could lead to at least a short-term bounce in housing values," said Scott Anderson, vice president and senior economist at Wells Fargo & Co. in Minneapolis.

ECRI: End of Recession is Near, Recovery Imminent

NEW YORK (Reuters) - A gauge of future U.S. economic growth edged higher in the latest week, sending its yearly growth rate to a two-year high that suggests a near-term end to the recession, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 118.5 for the week ended July 3 from a downwardly revised 117.4 in the prior period, which ECRI initially reported at 117.6 (see bottom chart above, data here). The index's annualized growth rate plowed further into positive territory to a two-year high of 5.4 percent from 3.9 percent the week prior, which was revised lower from 4.0 percent (see top chart).

It was the highest annual growth rate the gauge has seen since the week to July 20, 2007, when it read 5.7%. ECRI Managing Director Lakshman Achuthan holds that recovery is imminent before the year's end, as long as economic data continues to weaken at a slower pace. "It is increasingly evident that, despite widespread misgivings based on backward-looking economic data, the end of recession is at hand," said Achuthan.

Friday, July 10, 2009

Twin Cities Area Real Estate Market Rebounds

It's sure looking like the real estate market in the Twin Cities reached bottom earlier this year and is in a period of solid recovery, according to the June report from the Minneapolis Area Association of Realtors. Consider the following:

1. After falling pretty consistently for months during the last two years, the median home price in the Twin Cities area has increased by almost 17% since February, and by $25,000 in dollar terms (see chart above, click to enlarge). From April to June this year the median price increased by $20,500 compared to only a $500 increase last year from April-June.

2. Pending sales in June are up by 33.7% from the same month last year.

3. Closed sales in June are 20% higher than June 2008.

4. The average sales price in the Twin Cities area increased by $23,275 from April to June this year, compared to a $1,419 increase during the same period last year.

5. The current 7.3 months supply of inventory is more than 3 months lower than last year at this time (10.6 months).

6. The current Supply-Demand Ratio (SDR) of 4.90 homes for sale per buyer is 32.6% lower than last year's SDR of 7.27 homes per buyer. (Note: The SDR is calculated by comparing the number of homes for sale at the beginning of each month with the number of total pending sales for the month. The higher the SDR, the more supply there is relative to demand.)

Browser Marketshare for Microsoft Internet Explorer Falls from 80% to 66% in Two Years

According to The Economist, Microsoft Internet Explorer now has only a 66% market share for Internet web browsers, down from 80% two years ago, and probably the lowest level ever (see chart above). For Carpe Diem readers, only about 50% are using IE (6.0, 7.0 or 8.0), 35% are using Firefox/Mozilla, and 15% are using Safari (see chart below).

Hey, weren't we supposed to be worried about 10 years ago that Microsoft was an evil monopolist, and wasn't
it prosecuted for bundling Internet Explorer with its Microsoft Windows operating system, which was supposedly unfair because it restricted the market for competing web browsers?

Congressional Reality Check: The Laws of Supply and Demand Are NOT Optional

As if the recession hasn’t been rough enough on those near the bottom of the economic food chain, fresh bad news is on the way. Beginning July 24 (two weeks from today), the federal government will be making it more difficult for employers to hire low-skilled and unskilled American workers. Thanks to an ill-advised law enacted with bipartisan support in 2007, the cost of providing an entry-level job to individuals with few skills or minimal experience will be going up by more than 10 percent. Those who cannot find a job paying at least $7.25 an hour will not be permitted to work. Welcome to the latest chapter of America’s minimum-wage folly.

Those who press for a higher minimum wage often claim that making entry-level jobs more expensive won’t reduce the number of entry-level jobs. Were the government to compel a 41 percent increase (see graph above showing the 41% increase in the minimum wage from $5.15 in 2006 to $7.25 this year) in the price of gasoline or movie tickets or steel, every rational observer would expect a drop in the demand for gasoline, movie tickets, or steel. Yet when it comes to the minimum wage, politicians and journalists somehow persuade themselves that making workers more expensive won’t reduce the demand for workers.

But that’s exactly what it does. Artificial price floors - mandatory minimum prices set higher than what the market will bear - generate surpluses. Minimum-wage laws are no exception. The price floor imposed by the government on the supply of low-skilled labor results in a labor surplus, which is just another way of saying higher unemployment.

The laws of supply and demand are not optional. They weren’t enacted by Congress and Congress can’t override them. Minimum-wage laws don’t make low- and unskilled Americans more productive, more experienced, or more desirable. They merely make them more expensive - and more likely, therefore, to be unemployed.

It is bad enough that Congress and the president would deliberately price so many workers out of the market. What is worse is that they claim to be helping the poor when they do so (see cartoons below, both by Henry Payne of the Detroit News).

~Jeff Jacoby in the Boston Globe