Tuesday, April 06, 2010

A Lesson About Manufacturing Jobs from Farming

There is a lot hand-wringing about the loss of manufacturing jobs. For example, a Google search for the term "loss of manufacturing jobs" shows 308,000 results. We have lost eight million factory jobs since 1979, and manufacturing employment is now at the lowest level since 1941. As a percent of the U.S. labor force, manufacturing jobs have fallen to only 8.92% of total jobs in 2010, which is about one-third of the 28% manufacturing share of all jobs as recently as the 1960s (see chart above). And yet manufacturing output is close to an all-time high.

People don't seem too concerned, at least not any more, about the loss of farming jobs. Do a Google search for "loss of farming jobs" and you'll only get about 171 results. And yet the loss of farming jobs in the U.S. economy has been much greater than the loss of manufacturing jobs, measured as a share of total jobs.

It happened over a long period of time, but farming jobs as a share of the U.S. workforce went from 90% in 1790 to only 2.6% by 1990 (see chart below, data here). Because of advances in farm technology and increases in farmer productivity, we can now produce more food than ever before with only 2.6% of our labor force working on farms. Just the single invention of the tractor eliminated something like 10 million farm jobs.

Bottom Line: The trend in manufacturing in the U.S. is following the same pattern as farming: we're able to produce more and more output in both sectors with fewer and fewer workers, due to technological advances and significant increases in worker productivity. We're much better off as a country with only 2.6% of our workforce in farming compared to having 90% of our population involved in farming, and we're also much better off as a country with only 9% of our workforce toiling in factories compared to having 20 or 30% of our workers employed in manufacturing.

EPA Policies: It's Like Driving a Car With One Foot on the Gas, and The Other Foot on the Brake

April 1 - Obama administration’s EPA issued final rules forcing automakers to increase their vehicles’ fuel economy by 40% in five years. By 2015, the new 35.5 mpg EPA mandate goes into effect.

April 2 - The very same EPA favorably reviewed an ethanol fuel mandate that would force autos to get up to 5 percent worse fuel economy. By 2015, oil companies are mandated by Congress to double the amount of corn ethanol use to 15 billion gallons. The current mandate of a 10 percent ethanol mix in fuel won’t get us there, so the powerful corn lobby is demanding EPA increase the mandate to a 15% ethanol mix. Trouble is, a gallon of ethanol is 30% less efficient than a gallon of gas meaning that the more ethanol you mix in, the worse your gas mileage.

So while automakers are sweating under the federal gun to make increasingly fuel-efficient engines, the government is mandating they do it with less-efficient fuel.

~Henry Payne in NRO

HT: Matt B.

Another "Green Shoot" of Economic Recovery

April 6 (Bloomberg) -- Home Depot, the largest U.S. home-improvement retailer, is adding store jobs for the first time in four years in anticipation of a rebound in sales.

HT: Paul Kedrosky

Rail Freight Traffic Show Solid Signs of Recovery

"Freight traffic on U.S. railroads is continuing to show solid signs of recovery with carload freight volume hitting its highest level since November 2008 during the week ended March 27, 2010, according to the weekly report from the Association of American Railroads. U.S. railroads originated 293,114 carloads during the week, up 16.5 percent from the comparable week in 2009, and the highest weekly carload total since the week ended November 29, 2008.

Combined North American rail volume for the first 12 weeks of 2010 on 13 reporting U.S., Canadian and Mexican railroads totaled 4,324,920 carloads, up 4.8 percent from last year, and 3,036,161 trailers and containers, up 9 percent from last year."

Monday, April 05, 2010

Technology and Manufacturing Productivity Improvements Have Destroyed 6 Million Jobs

Update: This BEA link shows that real manufacturing output (in billions of chained 2000 dollars) almost doubled in the 20 years between 1987 and 2007, from $866 billion in 1987 to $1,618 billion in 2007.

Update: Real output per worker (2007 dollars).

According to BEA data on manufacturing output (value added) and manufacturing employment, there has been a decline of more than six million manufacturing jobs from the peak of 20 million in 1979 to fewer than 14 million jobs in 2007 (see blue line in top chart above). During that same period, manufacturing output (value added) has increased by more than three times, from $544 billion in 1979 to $1.63 trillion in 2007 (see red line in top chart), not adjusted for inflation.

Because of the significant increase in manufacturing output accompanied by the huge decline in employment, the manufacturing output per worker increased more than four times, from $27,175 in 1979 to $115,750. The increase in worker productivity is one of the main contributing factors to the elimination of six million manufacturing jobs in the U.S. Simply put, we're producing more and more manufacturing output with fewer and fewer workers.

With that in mind, consider this re-write of a recent news story about China:

"The continuing trade imbalance with China increases in worker productivity has have contributed to the loss of over 5.3 million U.S. manufacturing jobs in the last decade, 300,000 of those in New York State. The Capital District manufacturing sector has declined by 28 percent during that same period, losing approximately 10,000 jobs, and 2,000 last year," said Sen. Charles Schumer, D-N.Y.

“There is no bigger step we can take to promote U.S. job creation, particularly in the manufacturing sector, than to confront China’s currency manipulation, our productivity improvements due to advances in technology like roboticsSchumer said. “This is not about China technology or productivity bashing. It’s about defending the people of New York and the United States from the ongoing increases in worker productivity taking place in America's factories that have contributed to the loss of millions of manufacturing jobs.”

“We have a job crisis in upstate New York and in America,” Schumer said. “China Technology and increased worker productivity is are fanning the flames.” The legislation Schumer proposes would impose new penalties on countries who manipulate their currency, manufacturers who introduce productivity-enhancing technologies as a way to increase output with fewer workers.

Bottom Line: There's really no difference between: a) being able to produce more manufacturing output in the U.S. due to productivity increases that allow us to take advantage of technology advances and employ fewer workers, and b) being able to increase our manufacturing output in the U.S. by taking advantage of low-cost labor in China and employing fewer American workers.

The first example substitutes more efficient capital for labor, and the second substitutes low-cost labor for high-cost labor, but the net result is the same: more output with fewer workers. Imposing penalties on low-cost Chinese manufacturers because some U.S. jobs are eliminated makes as much sense as imposing penalties on American companies that introduce technology (e.g. robotics) and in the process eliminate some U.S. jobs.

756 Bad Things Attributed To Global Warming

Complete list here (includes "global cooling.") (HT: IBD)

Computers Then and Now

From 4-Block World. Happy 5th Anniversary to one of the best sites on the Internet, it's one of my favorites - I check it daily!

Work-Sharing Works for Germany, Netherlands

Economists Kevin Hassett and Dean Baker make the case for "work-sharing" in today's LA Times:
The idea of work-sharing is simple. Currently, firms mostly respond to weak demand by laying off workers. Under a work-sharing program, firms are encouraged by government policy to spread a small amount of the pain across many workers.

In Germany, for example, which has used work-sharing aggressively in this downturn, a typical company might reduce the hours of 50 workers by 20% rather than laying off 10 workers. The government would then provide a tax credit to make up for most of the lost pay, with the employer kicking in some as well. In a typical arrangement, a worker might see his weekly hours go down by 20%, and his salary go down by about 4%.

This policy has kept the unemployment rate in Germany from rising even though the country has seen a sharper decline in GDP than the United States (see chart above). The Netherlands, which also uses work-sharing, has managed to keep its unemployment rate near 4% even though its GDP also has fallen more steeply than in the United States.

The cost to the government of going this route would be roughly the same as with the current unemployment insurance program. The big difference is that instead of unemployment benefits that effectively pay people for not working, we would be paying people for working shorter hours.

March ISM Business Activity Reaches 4-Year High

From today's Non-Manufacturing ISM report:

"ISM's Non-Manufacturing Business Activity Index in March registered 60 percent, an increase of 5.2 percentage points when compared to the seasonally adjusted 54.8 percent in February (see chart above). Thirteen industries reported increased business activity (Utilities; Information; Mining; Retail Trade; Construction; Finance & Insurance; Management of Companies & Support Services; Wholesale Trade; Accommodation & Food Services; Other Services; Professional, Scientific & Technical Services; Public Administration; and Health Care & Social Assistance) and three industries reported decreased activity for the month of March (Real Estate, Rental & Leasing; Educational Services; and Transportation & Warehousing).

Comments from respondents include: "Seeing an increase in business. Our customers are feeling more optimistic"; and "New year budgets, as well as replacing inventories depleted during 2009."

MP: The ISM Business Activity Index for non-manufacturing industries has now been in expansion (index > 50) for seven out of the last eight months, and for four straight months, both for the first time in almost two years. The last time the Business Activity Index was at 60 or higher was April 2006, almost four years ago. Finally, as the red circles in the graph indicate, the current level of business activity (index = 60) is equal to: a) the index level in 2002 that signalled the end of the 2001 recession, and b) the index level in the summer of 2007 in the pre-recessionary period of economic expansion. Along with the economic momentum gaining strength in the manufacturing sector, this strong rebound in the non-manufacturing sector provides further evidence that a strong, unmistakable V-shaped economic recovery is underway.

Markets in Everything: Outsourced Grading

From today's Chronicle of Higher Education, "Some Papers Are Uploaded to Bangalore to Be Graded":

"Lori Whisenant knows that one way to improve the writing skills of undergraduates is to make them write more. But as each student in her course in business law and ethics at the University of Houston began to crank out—often awkwardly—nearly 5,000 words a semester, it became clear to her that what would really help them was consistent, detailed feedback.

Her seven teaching assistants, some of whom did not have much experience, couldn't deliver. Their workload was staggering: About 1,000 juniors and seniors enroll in the course each year. "Our graders were great," she says, "but they were not experts in providing feedback."

That shortcoming led Ms. Whisenant, director of business law and ethics studies at Houston, to a novel solution last fall. She outsourced assignment grading to a company whose employees are mostly in Asia.
Virtual-TA, a service of a company called EduMetry Inc., took over. The goal of the service is to relieve professors and teaching assistants of a traditional and sometimes tiresome task—and even, the company says, to do it better than TA's can."

Tax Deadline Approaches: Bring Us Back to 1913

Page 1 of the original IRS 1040 income tax form from 1913 appears above. There were only four pages in the original 1040 form, including two pages of worksheets, the actual 1040 form above, and only one page of instructions, view all four pages here. In contrast, just the current 1040 instructions, without any forms, runs 175 pages.

Individual income tax rates started at 1% in 1913, and the maximum marginal income tax rate was only 6% on incomes above $500,000 ($11 million in today's dollars). The personal exemption was $3,000 for individuals ($66,000 in today's dollars) and $4,000 for married couples ($87,500 in today's dollars), meaning that very few Americans had to pay federal income tax since the average income in 1913 was only about $750.

Sunday, April 04, 2010

Economic Lessons on Free Trade from the Auto Industry: How Cheap Imports Create U.S. Jobs

From Popular Mechanics: "6 New Cars Under $20K From the New York Auto Show:"

"If you’re looking for a car with no secret history, a warranty and decent gas mileage—but you don’t want to spend a lot—there are plenty of options. From the floor of the 2010 New York Auto Show, we bring you the top 6 cars you can buy for under $20,000."

1. Low labor costs in Cuautitlán, Mexico make the feisty Ford Fiesta affordable to the masses (see photo above). With a base price of around $13,320, the subcompact is available as a hatchback or sedan. Made in Mexico.

2. Nissan Juke, base price of $18,000. Made in Japan.

3. Mazda2, base price of $14,000. Made in Japan.

4. Scion IQ, base price to be announced. Made in Japan.

5. Chevy Cruze, base price of $15,000. Made in USA.

6. Kia Sportage, base price of $18,000. Made in South Korea.

A couple important points here:

1. Of the six cars featured, only one is made in America - Chevy Cruze, all the others are imports.

2. Even though most of these affordable cars are imports, they still create thousands of jobs in America since they are sold and serviced at dealerships around the country staffed by thousands of Americans, they are insured by U.S. insurance companies that employ thousands of Americans, financed by U.S. banks and credit unions, registered and taxed by state governments across the country, etc. Some manufacturing jobs might be displaced, but many other are created.

3. In the same way that Wal-Mart provides cost-saving benefits even to consumers who shop at Target, Costco, Walgreens, Safeway, Home Depot, and Best Buy because of the competitive discipline Wal-Mart imposes on its competitors, the super-efficient, low-cost foreign auto companies impose cost savings for Americans who buy U.S.-built vehicles because of the competitive discipline Mazda, Kia and Nissan impose on Ford and GM.

For example, consider the graph below that compares the monthly CPI for all items (data here) to the CPI for New Cars (data here) back to 1995. The CPI for new cars has been flat for the last 15 years, while the CPI for all items has increased by about 45% since 1995. If new vehicles had increased at the same average rate as all consumer items, new cars would be 45% more expensive than they are today (adjusted for quality). Stated differently, the price of new cars, adjusted for quality and inflation, have been falling every year by -2.50% on average.

Q: If the Big Three had continued with their 90% market share and been completely protected from foreign competitors like Toyota and Honda, would the real, quality adjusted price of cars have collapsed over the last 15 years? Not a chance.

Bottom Line: The market for new vehicles has never been more competitive than it is today, and foreign competition has played a major role in both improving the overall quality of both domestic and foreign vehicles, and contributing to falling vehicle prices in real terms. When it comes to selection, price, dependability, service and quality, American car consumers have never had it as good as they do today - there has never been a better time to buy a new car. And because of the incredible affordability of today's new cars, American consumers have saved millions of dollars that can be spent on other goods and services, which indirectly creates millions of U.S. jobs.

U.S. politicians like Rep. Tim Ryan (D-OH) claim that China's currency policy puts "a lot of Americans out of work." That's absolutely true. But it's only half the story. China's policy also creates millions of U.S. jobs, by saving U.S. consumers and companies millions of dollars every year, which helps U.S. firms buying Chinese inputs operate more efficiently and potentially hire more workers, and which also puts millions of extra dollars in the pockets of American consumers from the cost savings that can then be spent on other goods and services, which are frequently provided by U.S. producers, restaurants, retailers, etc. There are indirect benefits as well from the competitive discipline imposed on American companies by low-cost Chinese products.

The main lesson here about international trade, whether it involves foreign vehicles or Chinese imports, is that we only hear half the story when politicians, unions and domestic producers focus on the jobs lost from trade. What we don't hear is the story that involves the significant benefits and millions of dollars of cost-savings for American consumers and businesses, and the millions of jobs created from international trade - directly by the American firms using foreign inputs that operate more efficiently and competitively with low-cost inputs and thereby expand output and hire more workers, directly by the American suppliers, retailers and dealers who distribute and sell imported goods like Japanese vehicles, and indirectly by the American firms that benefit from increased output, sales and employment because of the significant cost-savings from cheaper imports that translate into increased demand for other goods and services.

The Biggest Fiscal Issue in America Today: More Public Sector Unionization = More State Debt

From the Washington Examiner article "Public Sector Unions and State Debt Go Hand in Hand" by David Fredosso:

"The states with the highest per-capita debt all have something in common: Robust public-sector unions that have, over the years, cut sweetheart deals with politicians -- usually, but not always, Democrats. In the graph above, each blue square represents a state, plotted by its per-capita debt and the percentage of state and municipal workers in public sector unions.

The numbers for unionization run from 2006 through 2009, and the numbers for debt are 2007, before the current crisis. If anything, this presents a rosier picture for most states than the current one. A rigorous study would control for dozens of factors, but this chart demonstrates the correlation between state unionism and debt. As you can see in the graph, the states coalesce into three main groups:

•Among states whose government workers are less than 40 percent unionized, median per capita state debt is $2,238.
•Among states with between 40 and 60 percent of their government workers in public sector unions, the average debt is $3,609.
•Among states with more than 60 percent of the government workforce unionized, the average (median) per capita debt is $6,380.

As you keep an eye on the fiscal collapse of California, and New Jersey Gov. Chris Christie's (R) efforts to rein in the unions' power next year, bear in mind that this is quickly becoming the biggest fiscal issue in America today.

Do public sector unions really protect workers from exploitation, or do they merely bankrupt the treasuries of states nationwide? And more immediately, will the states that made poor fiscal choices get a second bailout from the federal taxpayer after the 2009 stimulus package?"

MP: Using the data provided in the links in the article, my chart above replicates the original chart in the article, and the OLS regression results are provided below the chart. The OLS results indicate that:

1. There is a statistically significant positive relationship between: a) the unionization of a state's government workforce, and b) the per capita public debt of a state (prob = 0.0000).

2. On average, for every one percent increase in a state's government workforce, per capita state debt increases by $64.42, or $64.42 million per 1,000,000 population.

Happy Easter: Enjoy the Cheap Eggs and Food!

The chart above shows the real, inflation-adjusted wholesale prices of eggs (in 2009 dollars), annually back to 1890. The wholesale price we're paying today for eggs (about $1 per dozen) is about 1/10 of the price 100 years ago ($10 per dozen in today's dollars), a decline of 90% compared to the price American consumers paid in the early 1900s.

And it's not just egg prices that have fallen over the last 100 years. Food (both at home and away from home) as a share of disposable income has never been more affordable, see the chart below using USDA data through 2008. Food expenditures as a percent of disposable income were in double-digits for the entire 20th century, and were above 20% for most of the 1929-1952 period. It's only been since 2000 that spending on food has fallen below 10% of disposable income, and it reached an all-time historical low of 9.6% in 2008.

And compared to other countries, Americans are the luckiest consumers on the planet when it comes to the affordability of food, measured as a share of income (data here). Most European consumers spend twice as much on food consumed at home as a share of income (e.g. 13.7% in France, 14.5% in Italy) as Americans (5.7%), and consumers in Mexico (24.2%), Chile (23.4%) and Brazil (24.6%) spend about three times as much as we do.

Happy Easter, enjoy your cheap eggs and food and be thankful for your status as one of the luckiest consumers in the world.

Increase of 1 Million Private Sector Jobs This Year?

This graph and post were inspired by a recent Scott Grannis post titled "400,000 New Jobs and Counting," where Scott estimates that "new private sector jobs have increased by 400K so far this year, with 300K of those new jobs created in March alone."

The chart above shows the monthly changes in private sector employment, calculated by taking the difference between total "Civilian Employment" (
data here) from the BLS Household Survey and total "Government Employment" (data here) from the Establishment Survey.

Using that measure of private sector employment:

Private sector jobs increased by 543,000 in January, 330,000 in February and 225,000 in March, for a total increase so far this year of 1,098,000 private sector jobs - the largest three-month increase in almost five years (since the three-month period ending May 2005).

Scott points out that "the household survey can have random blips, such as the 500K drop in private sector jobs in December, and the 550K jump in January." So if we ignore December and January as random blips, there would still be 555,000 private sector jobs created in February and March.

Bottom Line: Whether the increase in private sector jobs this year is 400,000, or 555,000 or 1.098 million, any of those estimates suggest that the improvements in the private sector job market are much better than what the payroll survey is showing: a total increase of 162,000 jobs this year (data here).

Comments welcome.

Tax Fact of the Day; Good News, Bad News

"Americans pay far more in individual income taxes than residents of other wealthy nations. Nearly 37 percent of U.S. tax revenue came from personal income taxes in 2006, about 10 percentage points more, on average, than in other industrialized countries. But we pay much less in sales taxes; 17 percent of 2006 U.S. tax receipts were from taxes on goods and services, or about half the 32 percent average for rich countries."

~Washington Post

Friday, April 02, 2010

Emerging Market Stock Market Rally; 19 Mo. High

The MSCI Emerging Markets Index has increased six straight days, by a cumulative 6-day percentage increase of almost 4%, and reached a new 19-month high today of 1028.5, the highest closing value since August 1, 2008. From the lows last year of below 500, the Emerging Markets Index has more than doubled to levels now above 1,000.

Twitter Can Predict Future Movie Box Office Revenues and That Might Be Just the Beginning

From the paper "Predicting the Future With Social Media" from two researchers Hewlett-Packard's Social Computing Lab:

Abstract: In recent years, social media has become ubiquitous and important for social networking and content sharing. And yet, the content that is generated from these websites remains largely untapped. In this paper, we demonstrate how social media content can be used to predict real-world outcomes. In particular, we use the chatter from Twitter.com to forecast box-office revenues for movies. We show that a simple model built from the rate at which tweets are created about particular topics can outperform market-based predictors. We further demonstrate how sentiments extracted from Twitter can be further utilized to improve the forecasting power of social media.

Conclusion: In this article, we have shown how social media can be utilized to forecast future outcomes. Specifically, using the rate of chatter from almost 3 million tweets from the popular site Twitter, we constructed a linear regression model for predicting box-office revenues of movies in advance of their release. We then showed that the results outperformed in accuracy those of the Hollywood Stock Exchange and that there is a strong correlation between the amount of attention a given topic has (in this case a forthcoming movie) and its ranking in the future. We also analyzed the sentiments present in tweets and demonstrated their efficacy at improving predictions after a movie has released.

While in this study we focused on the problem of predicting box office revenues of movies for the sake of having a clear metric of comparison with other methods, this method can be extended to a large panoply of topics, ranging from the future rating of products to agenda setting and election outcomes. At a deeper level, this work shows how social media expresses a collective wisdom which, when properly tapped, can yield an extremely powerful and accurate indicator of future outcomes.

MP: The chart above shows the Predicted vs. Actual box office scores using the tweet-rate as a predictor of box office revenues and the Hollywood Stock Exchange (HSX), "a popular playmoney market, where the prices for movie stocks can accurately predict real box office results.... and which can be considered the gold standard." According to the authors, "the model built using the tweet rate outperforms the HSX-based model."

Buy New Apple iPad for $50,000, Get Free Hyundai

From the NY Times: -- That’s not exactly the equation, but that’s the idea. Anyone who buys a new Hyundai Equus — the car will be out in September — will receive an iPad instead of a printed owner’s manual.

“Who reads a 300-page manual anyway?” asked John Krafcik, the chief executive of Hyundai North America. “Instead, they’ll have a gorgeous color touchscreen loaded with the manual electronically, as well as photos of the whole Hyundai lineup.”

Another Bright Spot in Today's Employment Report

1. Manufacturing employment (data here) has increased for the last three months, the first time in four years of three consecutive monthly increases.

2. The gain of 45,000 jobs this year through March is the largest three-month employment gain in the manufacturing sector since May of 2004, almost six years ago.

ASA Staffing Index Surges 15% From Year Ago

According to the American Staffing Association (ASA):

1. "Temporary Help Employment Is a Strong Coincident Economic Indicator When the Economy Is Emerging From a Recession — A sustained upturn in staffing jobs would signal the end of the current recession."

2. "Temporary Help Employment Is a Leading Indicator for Nonfarm Employment - Staffing job trends lead nonfarm employment by three months when the economy is emerging from a recession and by six months during periods of normal economic growth."

From the ASA's
most recent report:

"Staffing employment in March is 15% higher than in the same month last year, according to the ASA Staffing Index (see chart above). The index for March is 83, up from 80 for February, suggesting that staffing employment has increased almost 4% over the past month. Staffing payrolls have shown steady growth over the past five weeks."

Other highlights:

1. Since the first of the year, the ASA Staffing Index has increased or remained flat in every week except one.

2. For the last 17 weeks going back to last November, the ASA staffing increased from the same week in the previous year, following 80 consecutive weeks of annual percentage decreases that started in May 2008.

As I
reported earlier, today's BLS report showed a record 6-month increase of 312,600 temporary workers from October 2009 to March 2010. Along with the recent strong improvement in the ASA Staffing Index, these two positive trends in temporary hiring provide convincing evidence that the labor market is gradually improving, and as leading indicators suggest a continuation of the employment gains that started in March (162,000 jobs).

In the early stages of economic recovery, employers remain cautious in their hiring decisions, and use temporary workers initially to meet higher demand for their products. As the current economic rebound gains greater momentum and employers become more confident about a continued economic expansion, they'll start hiring permanent workers - which will bring down the jobless rate in the coming months.

Early Indicators: Record 6-Month Increase in Temp Workers; 19-Month High for Mfg. Overtime Hours

From today's BLS employment report:

1) Manufacturing overtime hours increased slightly to 3.7 hours in March, reaching the highest level since August 2008 (see graph). Except for 0.10 hour decline in February, overtime hours have increased or stayed the same for each of the last 12 months. Compared to the low last March of 2.6 hours, overtime has increase by more than a full hour to 3.7 hours in March, which is 42 percent increase.

2) The number of temporary help workers increased in March by 40,200 to 2,037,000 employees, the highest level since December 2008 (see graph above). The March increase follows similar recent monthly increases of 49,200 in January and 36,700 in February. Temporary workers increased in March for the sixth straight month, following 23 straight months of declines, and it marks the first time since 2005 of six consecutive monthly increases.
The 312,600 increase in temporary jobs since the September-low is the largest 6-month increase since this data series started in 1990.

3) Nonfarm payrolls increased by 162,000 in March, the largest monthly gain in three years - since March 2007, although about one-third of those jobs were temporary Census jobs.

Bottom Line: Both the surge in temporary workers and the increase in overtime hours are early indicators of a broader recovery in the labor market, and signal future increases in job creation. In the early stages of economic recovery, it makes sense for cautious employers to both increase temporary hiring and increase overtime hours of existing workers. As the economy stabilizes and expands and employers become more confident there will be broader hiring for permanent workers.

Thursday, April 01, 2010

Worldwide Bull Market Rally Hits 18-Month High

The MSCI World Stock Market Index reached an 18-month high today of 1,212.14, the highest closing index level since late September 2008. Compared to a year ago, world stock markets have risen by more than 48%.

Related story:

(Reuters) - "Factories in the United States, Europe and Asia cranked up production last month, suggesting recovery from a deep recession was taking root in economies around the globe. The U.S. manufacturing sector grew at its fastest pace in more than five years last month and activity in Europe bounced higher, with a cheaper euro helping stimulate exports. UK manufacturing expanded at its fastest pace since 1994, while China's vast industrial sector also grew in March."

How Mobile Phones and IT Promote Economic Development in Africa and Even Increase Literacy

Some excerpts from an excellent Boston Reivew article "Africa Calling: Can mobile phones make a miracle?" by economsits Jenny Aker and Isaac Mbiti:

"There are some good reasons to believe that mobile phones could be the gateway to better lives and livelihoods for poor people. While some of the most fundamental ideas in economics about the virtues of markets assume that information is costless and equally available to all, low-income countries in sub-Saharan Africa are very far from that idealization. Prior to the introduction of mobile phones, farmers, traders, and consumers had to travel long distances to markets, often over very poor roads, simply to obtain price (and other) information. Such travel imposed significant costs in time and money.

Mobile phones, by contrast, reduce the cost of information. When mobile phones were introduced in Niger, search costs fell by half. Farmers, consumers, and firms can now obtain more and in many cases “better” information—in other words, information that meets their needs. People can then use this information to take advantage of arbitrage opportunities by selling in different markets at different times of year, migrating to new areas, or offering new products. This should, in theory, lead to more efficient markets and improve welfare.

An emerging body of research suggests that perhaps theory is meeting reality. In many cases, these economic gains from information have occurred without donor investments or interventions from non-governmental organizations. Rather, they are the result of a positive externality from the information technology (IT) sector.

African governments, donors, mobile phone companies, and NGOs recognize the potential of mobile phones in many arenas of economic development. An emerging trend is the development of mobile phone-based services and products—applications or “apps”—that go beyond basic voice calls. In wealthy countries apps have mainly been sources of entertainment, but in poorer countries, they provide opportunities for disseminating market information, monitoring health care, and transferring airtime and money. In most cases these apps are developed by the private sector and then adopted (and adapted) by the development community. Projects in agriculture, health, education, and governance increasingly rely on the services uniquely available via mobile phones.

Simple and affordable mobile phones are also being used as a means to promote adult literacy in Africa. In addition to a regular literacy curriculum, adults in the Nigerien village of Falenko learn where to find letters and numbers on a mobile phone and how to send and receive SMS messages. Within four months, students are able to practice their newly acquired literacy skills by sending SMS messages to their friends and family. In a country without vernacular newspapers and village libraries, SMS makes literacy functional. Early results suggest that students who use a mobile phone as a learning device make faster progress and achieve greater literacy than those relying solely on traditional classes. Similar mobile-literacy projects are starting in Senegal, and others in India are using smart phones and mobile games as teaching tools for children."

Wal-Mart Sometimes More Selective Than Harvard

April 1 (Bloomberg) -- Harvard University admitted a record-low 6.9 percent of students seeking undergraduate admission after attracting the most applications ever, including almost 3,600 from seniors ranked first in their high school. Harvard College offered admission to 2,110 of this year’s 30,489 applicants. Last year, the Cambridge, Massachusetts, college accepted 7 percent."

Harvard is obviously very, very selective when offering admission to its applicants, but at least on some occassions, Wal-Mart is even more selective when offering jobs to its applicants.

(Crain's, January 2006) — The new Wal-Mart Stores location opening Friday in suburban Evergreen Park, Illinois received a record 25,000 applications for 325 positions, the highest for any one location in the retailer’s history, a company official says. Wal-Mart's Chicago-area manager Chad Donath said generally stores receive between 3,000 and 4,000 applications for about 300 to 450 positions.

That would mean Wal-Mart accepted only 1.3% of job applicants at its Chicago store, making it harder to get a job at Wal-Mart than gain admission to Harvard University. Of course, Wal-Mart's normal acceptance rate is closer to 10%, making it slightly less selective than Harvard on average.

Bottom Line: Just like Harvard has to be a pretty desirable place to attend college since it gets more than 14 applications for every opening, Wal-Mart must be a pretty desirable place to work if it routinely gets 10 applications for every job opening. And yet the standard assumption is that Wal-Mart's wages are unreasonably low. A Google search of Wal-Mart and "low wages" results in 47,000 hits.

But with Wal-Mart receiving 10 applications per position, you could actually make a stronger case that Wal-Mart's wages are actually TOO HIGH. That is, Wal-Mart could lower its wages considerably and still have too many applications.

Feb. Restaurant Index Highest Since Nov. 2007

"Driven by a solid improvement in restaurant operators' outlook, the National Restaurant Association's comprehensive index of restaurant activity rose to its highest level in 27 months in February (see chart above). The Association's Restaurant Performance Index (RPI), a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry stood at 99.0 in February, up 0.7 percent from January and its strongest level since November 2007.

However, despite the solid improvement, the RPI remained below 100 for the 28th consecutive month, which signifies contraction in the index of key industry indicators. The RPI's strong gain in February was the result of broadbased improvements among the forward-looking indicators. Restaurant operators' optimism for sales growth stood at its strongest level in 29 months, with capital spending plans also rising to a two-year high."

March ISM Manufacturing Index Highest Since 2004

"Economic activity in the manufacturing sector expanded in March for the eighth consecutive month, and the overall economy grew for the 11th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business (see chart above).

The manufacturing sector grew for the eighth consecutive month during March. The rate of growth as indicated by the PMI is the fastest since July 2004. Both new orders and production rose above 60 percent this month, closing the first quarter with significant momentum going forward. Although the Employment Index decreased 1 percentage point to 55.1 percent from February's reading of 56.1 percent, signs for employment in the sector continue to improve as the index registered a 10 percent month-over-month improvement, indicating that manufacturers are continuing to fill vacancies. The Inventories Index provided a surprise as it indicated growth for the first time following 46 months of liquidation — perhaps signaling manufacturers' willingness to increase inventories based on expected levels of activity."

MP: Add this to the growing list of V-shaped signs of economic recovery, especially in the manufacturing sector. Notice that the recovery of manufacturing activity since mid-2009 is much stronger than the recovery in the period following the 2001 recession, and we're quickly approaching the peak manufacturing activity reached in 2004.

Jobless Claims (4-Week Avg.) Fall to 80-Week Low

The Department of Labor reported today that jobless claims (4-week average) fell to 447,250 last week, the lowest level since mid-September 2008, meaning that jobless claims fell to an 80-week low (see chart above). From the peak in April 2009, jobless claims have fallen by 195,750 over the last year. Jobless claims (4-week average) have fallen for each of the last three weeks, and have declined in six out of the last eight weeks. The worst of the labor market problems are definitely behind us, as jobless claims have trended down for the last year. Compared to the 643,000 claims a year ago in early April, we've made a lot of progress, and the trend should continue.

Monster Employment Index Rises 6% from 2009

"The Monster Employment Index (MEI) had a monthly rise of one point in March, as employers continued to expand hiring efforts at the end of the first quarter. The annual growth rate in the MEI accelerated in March, with the current online demand level six percent above where it was a year ago.

“We’re encouraged by the positive uptick in the Index in the past two months,” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide. “The Index results may be a signal that companies intend to start hiring again. While the labor market continues to be challenging for those looking for work, we are encouraged to see early signs of what may be a return to consistent job growth.”

Highlights include:

• New growth in real estate, rental and leasing; and construction industries; public administration and information decline.

• Continued gains in healthcare practitioner occupations, while community and social service; protective service and business edge down.

• Online job demand rises in all of the 28 major metro markets, with Orlando showing strongest monthly gain."

Wednesday, March 31, 2010

Global Shipping Rebound Gains Steam, Leading to Shipping Delays, Some Shortages of Container Ships

I've had a couple of persistent requests for updates on global shipping trends, so here is a summary of recent news:

Packed Containers Piling Up At Asian Ports Because There's Too Much Demand From West - "Packed containers are piling up at Asian ports as strong demand from the U.S. and Europe causes a lack of supply of ships. Shipping companies had purposefully idled capacity during the economic downturn, then started to bring it back recently. Yet they didn't do it fast enough to keep up with the robust pick-up in demand from the West."

Shippers Rattled By Shortage Of Ships Due To Trade Surge - "Here's a breath of fresh air for struggling container ship owners -- U.S. shippers are starting to worry about a shortage of container ships, due to the recent trade rebound on Transpacific routes.

A lot of ships were idled during the economic downturn and this dormant capacity is unlikely to come back online fast enough alongside a surge in shipping activity. It's a tangible sign that the global trade rebound is both real and gaining steam."

Rumor: Flood Of Idle Ships Coming Out Of Lay-Up Because They See A Sustained Global Rebound - "Ship owners and managers with a ground-level view of global trade, plus massive skin in the the game of physically shipping goods (bringing a ship out of lay-up is a risky proposition), are starting to regain confidence in the current global rebound. That says a lot more than any pundit or analyst could since when ship owners get it wrong they get murdered (figuratively, usually)."

U.S.-Bound Boxes Pile Up in Asia as Lines Avoid Adding Ships - "South Korea’s biggest port, overwhelmed with empty containers a year ago, is now dealing with shipping lines that have more cargo than they can carry. Surging shipments of furniture, electronics and clothes to the U.S. and Europe, coupled with capacity cuts by shipping lines, has caused as much as 15 percent of containers to be delayed in Busan this year, often by more than a week, according to Park Jong Ho, assistant general manager at Busan International Container Terminal Co.

“With the economy recovering, we have been seeing a lot of containers that didn’t make it out on time because there wasn’t enough space on ships,” he said.

Int'l Air Traffic: Passenger +7.5%, Cargo +26.5%

Geneva - "The International Air Transport Association (IATA) announced that February 2010 international scheduled air traffic showed continued strengthening of demand. Compared to February 2009, passenger demand was up 9.5%, while cargo demand grew 26.5% (see chart above).

These are strong gains, but it must be noted that February 2009 marked the bottom of the cycle for passenger traffic during the global economic recession. Passenger demand must recover by a further 1.4% to return to pre-crisis levels. Cargo hit bottom in December 2008, with little improvement realized by February 2009. Cargo traffic, which plunged much further than passenger demand, has a further 3% to recover in order to return to pre-crisis levels.

“We are moving in the right direction. In two to three months, the industry should be back to pre-recession traffic levels. This is still not a full recovery. The task ahead is to adjust to two years of lost growth,” said Giovanni Bisignani, IATA’s Director General and CEO.

The highlight for February was improved load factors which stood at 75.5%. Considering that February is traditionally the weakest month for travel, and if seasonally adjusted, this translates to an all-time record February load factor of 79.3%."

Canada's Turnaround from a High-Debt, High-Tax, High-Deficit Country to Lowest Tax Rates in G7

TORONTO GLOBE AND MAIL -- "Canada's relatively low corporate taxes have helped to make this country one of the best places in the world for companies to set up shop. Canada ranks second among 10 key countries as a cost-effective place to do business, and relatively low taxes are one of the main factors, consultants KPMG said in a report released yesterday.

KPMG said one key reason for Canada's high standing is that federal and provincial governments have been cutting taxes and reforming tax laws in recent years. Indeed, Canada now has lower business taxes than any other G7 country.

"It's really over the last 10 years Canada's tax position has changed quite significantly from being a high-tax jurisdiction to now actually leading the G7," said Glenn Mair, director of MMK Consulting, which assisted in preparing the KPMG study.

Since 2000, the overall corporate income tax rate in Canada has fallen to about 31 percent from about 43 percent, said Jack Mintz, chair of the University of Calgary's School of Public Policy. It will fall further, to about 26 percent, over the next few years.

When it comes to attracting business, "there is no question that the tax system helps a lot," Mr. Mintz said. Fifteen years ago, "we were viewed as a high-debt, high-tax, high-deficit country," he said. "Today we look like a much better country, and certainly we had a much better balance sheet going into the recession.""

MP: The Heritage Foundation chart above shows that Canada's corporate tax decrease to 26% over the next few years, will put it 12.7% below the U.S. rate of 39.3%, and bring it below the 26.6% average corporate tax rate in 2008 for non-U.S. OECD countries. In quite a turnaround, it looks like Canada and the U.S. have traded places - the U.S. is now the high-debt, high-tax, high deficit country, and Canada has become the low-debt, low-tax, and low-deficit country.

Canada Leads USA in Real Estate Recovery

Canadian home prices in January were up 7.5% from a year earlier, according to the Teranet-National Bank National Composite House Price Index (see top chart above), which was released today. January was the fourth consecutive month in which prices increased from a year earlier, after 10 consecutive months of 12-month deflation. The turnaround is due to nine straight monthly increases in the countrywide index (see bottom chart above) that followed eight straight monthly decreases. Compared to the previous peak in August 2008, home prices in Canada have increased by 1.6%, to set a new record high level in January.

To get an idea how home prices in Canada compare to the U.S. since 2001, the chart below tells the story. Home prices in both countries increased by about 80% since 2001, but peaked much earlier in the U.S. (early 2006) than in Canada (mid-2008), and U.S. home prices fell by much more from the peak (-30%) compared to the drop in Canada (-9%). Home prices have now completely recovered in Canada, whereas it might be many years before home prices in the U.S. return to the 2006 level.

Flat Tax: How it Works and Why It's Good for U.S.

This Center for Freedom and Prosperity Foundation video featuring Dan Mitchell of the Cato Institute shows how the flat tax would benefit families and businesses, and also explains how this simple and fair system would boost economic growth and eliminate the special-interest corruption of the internal revenue code.

If you're getting frustrated completing your tax returns for 2009, note the easy-to-fill-out postcard-size tax forms that would be a key feature of a flat tax. It reminds me of the very first IRS Form 1040, which was a one-page tax form with two pages of simple worksheets, and one page instructions for a grand total of only four pages, view it here.

Haiti's Tent Cities: Incubators for Entrepreneurs

After the devastating earthquake -- tent cities in Haiti have become something of an incubator for entrepreneurs. Watch a Reuters video here.

HT: Colin

Computers Just Keep Getting Cheaper and Better and We Should Eagerly Await the Days Ahead

Craig Newmark points to a great website "Classic PCs vs. New PCs: Their True Cost: Doing the math makes technology's relentless progress even more amazing," where they compare the costs and specifications of various computers from the 1970s and early 1980s to today's computers.

One example is illustrated above: a 1984 Apple Macintosh vs. a 2009 Apple iMac. Adjusted for inflation, today's Apple iMac is 26% cheaper ($3,849) than the 1984 Macintosh ($5,186). Measured in the number of hours of work at the
average hourly wage ($8.48 in 1984 and $18.57 in 2009) to purchase a computer at the retail price in current dollars, the price of an Apple computer has fallen by almost 30% (294 hours in 1984 vs. 207 hours in 2009). But what's maybe even more interesting is to adjust for the phenomenal increase in computer power, and compare the real dollar cost per CPU (MHz) and RAM (KB) in 1984 versus today. Here's that comparison:

Real Dollar Cost per CPU (MHz)
1984 Apple Macintosh: $662.35
2009 Apple iMac: $0.34

Real Dollar Cost per RAM (KB)
1984 Apple Macintosh: $40.52
2009 Apple iMac: $0.00025

In terms of the cost of processing speed (real dollars per MHz), the 2009 Apple iMac is 1,947 times cheaper, and in terms of memory cost (real dollars per KB), the 2009 Apple iMac is 162,000 times cheaper. And keep in mind that the 1984 Macintosh didn't even have a hard drive - you had to store all of your files on a floppy disk!

From the website:

"Computers today are mind-blowingly more powerful than they used to be. More importantly, consumers get vastly more computing power and capacity for their dollar today than they ever have before. The low end of the market gets lower, and the high end…also gets lower. It’s very difficult to buy a non-diamond encrusted $10,000 PC, much less a $20,000 one, which you could do back in 1980s without breaking a sweat. But it’s easy to buy a steel-encrusted $350 bargain PC that’s just as powerful as a top of the line model a few years ago.

From this simple analysis of computer cost, I suspect that baseline desktop PC prices will continue to decrease over time. To what end and how much, I’ll leave to professional market analysts. But I do know that, in the computer industry at least, the past is often a good indicator of broad trends that will continue to unfold for years to come. I eagerly await the days ahead."

MP: If the dramatic price reductions and quality/speed improvements of computers and other electronic products happened suddenly all at once, it would probably be declared to be a miracle. If nothing else, it would certainly catch our attention. But when the price reductions and quality improvements happen continually and relentlessly all the time, we become immune and either don't even pay attention, or tend to take the improvements for granted.

Thankfully, the comparison of today's economy to the Great Depression have started to fade, because it was easy for many to think our standard of living would somehow return to the level of the 1930s. This comparison of computer prices helps us appreciate how technological improvements elevate the standard of living of the average American to levels that previous generations couldn't have even imagined. Another lesson here might be that even a Great Recession can't stop the progress of human ingenuity, technological improvements, and the entrepreneurial spirit that will continue the relentless trend towards better and cheaper products, and a continually rising standard of living.

Tuesday, March 30, 2010

4th Straight Week of Gains for Rail Freight Traffic; 16 of 19 Commodity Groups Increased vs. Year Ago

The Association of American Railroads reported that for the fourth consecutive week, freight traffic on U.S. railroads increased compared with the same period a year ago during the week ended March 20. Highlights include:

1. U.S. railroads originated 287,639 carloads during the week, up 4.3 percent from the comparable week in 2009.

2. Intermodal traffic totaled 201,300 trailers and containers, up 9.5 percent from last year.

3. Sixteen of 19 carload commodity groups showed gains from a year ago, with 13 of them showing double digit percentage gains, led by a 69.2 percent increase in loadings of metals and products. Other commodities showing significant increases included grain, up 24 percent; motor vehicles, up 20.8 percent; waste and scrap, up 33.1 percent; lumber and wood products, up 21.8 percent, and chemicals, up 14.4 percent.

4. Combined North American rail volume for the first 11 weeks of 2010 on 13 reporting U.S., Canadian and Mexican railroads totaled 3,941,811 carloads, up 3.6 percent from last year, and 2,772,992 trailers and containers, up 8.7 percent from last year.

The Rich Are Not Docile Sheep Waiting to Be Shorn

"President Barack Obama's new health-care legislation aims to raise $210 billion over 10 years to pay for the extensive new entitlements. How? By slapping a 3.8% "Medicare tax" on interest and rental income, dividends and capital gains of couples earning more than $250,000, or singles with more than $200,000.

The president also hopes to raise $364 billion over 10 years from the same taxpayers by raising the top two tax rates to 36%-39.6% from 33%-35%, plus another $105 billion by raising the tax on dividends and capital gains to 20% from 15%, and another $500 billion by capping and phasing out exemptions and deductions.

Add it up and the government is counting on squeezing an extra $1.2 trillion over 10 years from a tiny sliver of taxpayers who already pay more than half of all individual taxes.

It won't work. It never works. Punitive tax rates on high-income individuals do not increase revenue. Successful people are not docile sheep just waiting to be shorn."

Alan Reynolds in today's WSJ

Here are some reports on how tax increases on millionaires worked out in Maryland:

Wall Street Journal -- "Maryland's Mobile Millionaires: Income tax rates go up, rich taxpayers vanish."

Washingont Post -- "The number of self-reported million-dollar earners in Maryland has dropped by roughly a third compared with this time last year, renewing debate yesterday about whether the state's year-old "millionaires' tax" is driving rich people beyond its borders."

Baltimore Sun -- Top Payers Fade Away; Maryland Was Depending On Taxing Millionaires, But They're Disappearing.

Wall Street Journal -- Millionaires Go Missing; Maryland's fleeced taxpayers fight back.

Case-Shiller Home Price Indexes Rise for 8th Month

The S&P/Case-Shiller Home Price Indices for January 2010 were released today. Highlights include:

1. Both the 10-City Composite and the 20-City Composite Home Price Indexes have increased for eight consecutive months for the first time since the spring of 2006, almost four years ago, and both indexes in January reached their highest levels in 12 months, since January 2009 (see top chart above).

2. Based on the percentage increase from the same month in the previous year, the annual rates of returns for both home price indexes improved in January for the 12th consecutive month, and while still slightly negative (-0.04% for the 10-City Index and -0.69% for the 20-City Index) the annual returns are close to be being in positive territory for the first time in three years (February 2007).

3. In three of the cities with the biggest annual January-to-January price declines in the Case-Shiller index like Las Vegas (-17.4%), Miami (-6.77%) and Phoenix (-4.5%), I have reported recently (
here, here (for all of Florida) and here) that the home sales in those markets have been strong, and consistently above sales levels from the same month in the previous year in each month for the last year or longer.

For example, both Florida and Las Vegas home sales increased in February for the 18th month in a row, and Phoenix home sales in February were the highest for that month since 2006.

Bottom Line: Nationally, home sales bottomed in January 2009, and have been on an upward trend for the last 12 months. The Case-Shiller Composite Home Price Indexes both reached a bottom in May 2009, and have now increased for eight straight months. Now that there's a gradual upward trend in both home sales and home prices, it's a positive sign that we've moved past the bottom of the real estate market, and are now moving slowly towards a full recovery. The falling prices through the middle of 2009 helped to bring buyers back into the market and bring about a better balance in the market, as excess inventories have gradually been cleared. As Larry Kudlow reminds us, "Market forces work."

Univ. of Florida Fall 2010:150 Women Per 100 Men

According to University of Florida spokesman Steve Orlando, six out of 10 new UF students will be women in fall 2010, which is the largest gender gap favoring female students that UF has ever had. UF’s fall 2009 enrollment was 54% female and 46% male, according to the UF Office of Institutional Planning and Research.

UF is aware of the gap but not doing anything to balance the numbers, Orlando said. But he said the school isn’t discriminating against male applicants. “Boys wouldn’t be admitted because they’re boys,” he said. “Girls are being admitted because they are doing the things to be admitted and boys aren’t.”

MP: Can they really still call it the "freshman" class?

The Power of the Market: Haitian Entrepreneurs Are Kick-Starting the Local Economy in Tent Cities

Nearly three months after the devastating earthquake in Haiti, small businesses are springing up within the tent communities housing displaced people. Adam Davidson of NPR'S "Planet Money" reports on the entrepreneurs who are kick-starting the local economy. Click here to watch video.

"There's more competition now than before the earthquake."

Update on the NYC "Taxi Cartel"; Medallion Prices Reach Record Highs in 2010 of $588k and $779k

The "priciest piece of aluminum in NYC" - a taxi medallion to operate a single cab in NYC - reached a new record-high of $588,000 in February for an individual medallion (see chart above, data here), more than double the average prices in 2004. The average price for a corporate-owned taxi medallion reached a new record high in January at $779,000, and fell slightly in February to $775,000.

Membership in the "taxi cartel" certainly has its privileges: above-market returns of 20.75% per year for corporate medallions and 15.32% for individual medallions in a permanent bull market. See previous CD posts here,
here and here.