Tuesday, June 22, 2010

Colombia: Rags-to-Riches Success, With a Booming Bull Market That Leads World for 10-Yr. Returns

Both the Wall Street Journal and Investor's Business Daily had editorials today about the presidential election in Colombia, which should also receive some attention for its record-setting, booming stock market rally.  Colombia's MSCI Index topped 900 for the first time last Friday, and registered gains yesterday and today, closing at an all-time record high today of 909.25 (see chart above, data here).  The bull market in Colombia is especially impressive when you consider that its market stagnated for the entire decade between 1994-2004, reached a low of 42 in December 2000, before it skyrocketed to almost 600 by early 2006, and then went over 800 last year and over 900 this year. 

On a year-to-date basis, Colombia's market has increased 15%, which is the world's highest stock market return since January.  Colombia's one-year return of 47.5% isn't too bad either, although Mexico, Indonesia, Peru and Turkey have done slightly better.  But when it comes to the average annual stock market return over the last ten years, no country in the world comes close to Colombia's return of 34.55%; not China (6.75%), not Turkey (2.66%), not Russia (13.24%), and not Brazil (14%).  In fact, the only country that even comes remotely close is neighboring Peru with a 23.6% average annual return since June 2000. 

The WSJ and IBD focus mostly on Juan Manuel Santos' landslide victory on Sunday's (note that most other countries vote on weekends,  and that weekday voting in the U.S. is unique), but point out some important economic lessons about free markets and free trade:

IBD:  "Santos is probably most dangerous for Venezuela's Hugo Chavez, because Colombia's rags-to-riches success story is so dramatic — showing that any beat-up nation can drag itself out of misery through markets — and because Venezuela and Colombia are such close neighbors. Word gets out about how well things are going in Colombia and it spreads fast in Venezuela. Santos need never fire a shot at Venezuela to slay Chavez's revolution because the power of the markets will do it for him.

Santos is also planning something that is likely to give Chavez — and for that matter, President Obama, something to think about — a forging of a more assertive Pacific alliance with free-market Chile and Peru, as well as the nations of the Pacific Rim. Given Obama's dithering on free trade — and the fact that Canada on Tuesday, has just finalized its pact, and it's obvious Colombia is going to prosper with or without its friends or enemies."

WSJ - "This triumph in Colombia also ought to echo in Washington, where Democrats in Congress and the White House continue to deny a vote on the U.S.-Colombia free trade agreement. One liberal Democratic excuse has been concerns about Mr. Uribe's (current president) security policies, but Colombia's people have now spoken.    Like Mr. Uribe, Mr. Santos wants the free trade deal to force his country to face the discipline of global competition and turn Colombia into the next Chile or Taiwan. Such progress would further reduce the FARC's appeal, and it is certainly in the U.S. national interest. This one shouldn't even be controversial.

See CD post here on Colombia, where I pose the question: 
With incredible export opportunities awaiting U.S. manufacturers in booming, emerging markets like Colombia (see chart above), with the huge potential to create much-needed jobs for America’s workers, and with universal support from almost every sector of the economy, what could possibly be holding up the Free Trade Agreements with Panama, Colombia and Korea?

ASA Staffing Index at 82-Week High

The American Staffing Association released its weekly update today on hiring trends for temporary help and contract work, with the following comment:

"During the week of June 7–13, 2010, temporary and contract employment increased 1.96%, pushing the index up one point to a value of 90.  At a current index value of 90, U.S. staffing employment is 30% higher than the level reported for the first week of the current year and is 25% higher than the same weekly period in 2009."

MP: For the 22 weeks since the beginning of the year, the ASA staffing index has increased (or stayed the same) for 20 of those weeks, and declined in only two.  The index values of 90 for both the week of May 17 and the week of June 7 mark the first time in 82 weeks (since the week of November 10, 2008) that the ASA index has been at the 90 level.  While still below 2008 levels, the gradual upward trend in the staffing index starting about a year ago signals gradual, but ongoing improvements in the labor market for temporary positions and contract work.   

Temporary help employment tracked by the ASA is considered to be an accurate leading indicator of employment trends. According to the ASA, temporary job increases typically lead gains in broader employment growth by three months when the economy is emerging from a recession (see chart above), and the continuing strength in temporary hiring hopefully signals future employment growth for the U.S. economy.

June Richmond Fed Index Still in Record Territory

"Manufacturing activity in the central Atlantic region expanded for the fifth consecutive month, according to the Richmond Fed’s latest survey.  Looking at the main components of activity, shipments were virtually unchanged, while employment grew at a modest pace, and new orders grew more slowly. Other indicators varied."

MP: Despite the 3-point drop from the all-time high of 26 in May to 23 in June (a "skid" in manufacturing activity according to this report), Richmond regional manufacturing in June is at the second-highest level in the history of the index back to January 1994.   

How Gov't. Created The Ironing Board Monopoly

WASHINGTON POST -- There is one factory left in the United States that manufactures the basic ironing board, and its survival against Chinese competition demands unrelenting, production-line hustle. The company survives in part because it convinced U.S. trade officials that Chinese firms were unfairly dumping ironing boards into the United States at less than fair-market value; in response, the United States levied anti-dumping taxes of 70 to more than 150 percent on its Chinese rivals.

But imposing tariffs on foreign goods also elicits loud protests, and not just from the foreign manufacturers who face the burden. Some U.S. retailers say that the tariffs have given the American factory, long the market leader in the United States, a near monopoly on ironing boards. And economists say that the tariffs push up prices for American consumers, who buy an estimated 7 million ironing boards each year.

Some economists have also questioned whether such tariffs amount to good U.S. policy.  "It doesn't make much sense to force millions of U.S. consumers to pay higher prices for ironing boards to save 200 jobs," said Howard Rosen, an economist at the Peterson Institute who has organized efforts to get retraining programs for workers displaced by the offshoring of jobs. "It would make more
sense to help workers move to other jobs."
MP: Isn't this an example of how government trade policy created an anti-consumer, anti-competitive monopoly? Shouldn't the Department of Justice investigate?

Steve Bartin

What's Going On? Pageview Inflation?

At the bottom of this article in today's Washington Post:

This is NOT a very long article (< 1,400 words) so WHY do they stretch it out over FOUR separate web pages?  Is this "pageview inflation," or for advertising reasons, or what explains this?  

The Good Old Days Are Now: Radio Shack Version

In 1964, here's what the average American consumer could afford after working 152 hours (almost a full month) at the average hourly wage then of $2.50: a "moderately priced, excellent stereo system" from Radio Shack on sale for $379.95. 

In contrast, the typical consumer today working 152 hours at the current average hourly wage of $19 could afford this "cornucopia" of electronic goods:

Read more here at the Enterprise blog.

Monday, June 21, 2010

"Spinal Tap" Grade Inflation in Law Schools

NY TIMES -- "One day next month every student at Loyola Law School Los Angeles will awake to a higher grade point average. But it’s not because they are all working harder. The school is retroactively inflating its grades, tacking on 0.333 to every grade recorded in the last few years. The goal is to make its students look more attractive in a competitive job market.

In the last two years, at least 10 law schools have deliberately changed their grading systems to make them more lenient. These include law schools like New York University and Georgetown, as well as Golden Gate University and Tulane University, which just announced the change this month. Some recruiters at law firms keep track of these changes and consider them when interviewing, and some do not.

Law schools seem to view higher grades as one way to rescue their students from the tough economic climate — and perhaps more to the point, to protect their own reputations and rankings. Once able to practically guarantee gainful employment to thousands of students every year, the schools are now fielding complaints from more and more unemployed graduates, frequently drowning in student debt."

HT: Michael Kelly

Men Still Hold 52.8% of All Jobs

From The Atlantic article "The End of Men":

"Earlier this year, women became the majority of the workforce for the first time in U.S. history."

That statistic gets cited by the media all the time, but it's not really accurate, at least not according to the BLS household employment survey, which is more comprehensive than the payroll survey, which doesn't include the self-employed.  As of May 2010, there are almost 8 million more men (73.639 million) employed than women (65.781 million), and men hold almost 53% of all jobs (see chart above).   

SAT is Racist: Solution? Make The Test Harder.

In a recent CD post, I featured some claims that the SAT test is sexist and "rigged to favor boys," even though the College Board's Board of Trustees is headed by a woman (Youlonda Copeland-Morgan, pictured above), and has slightly more women (16 members) than men (15 members).  Now there's some new evidence that the SAT is also racially biased, and I guess therefore "rigged to favor whites," even though the current Chair of the Board of Trustees of the CollegeBoard (which owns the SAT) is black (Ms. Copeland-Morgan pictured above) and Lester Monts, the past chairman, is black.  

And this part of the new research seems especially confusing:

There's a concept on test-taking research known as "differential item functioning" (DIF). A DIF question is one on which students "matched by proficiency" and other factors, have variable scores predictably by race, on selected questions.  On some of the easier verbal SAT questions, two studies find that the DIF favored white students, but on some of the most difficult verbal questions, the DIF favored black students. The white advantage is larger such that the studies suggest scores for black students are being held down by the way the test is scored, and that a shift to favor the more difficult questions would benefit black test-takers.

The Highly Transient Millionaires

Key findings from a new study from The Tax Foundation "Income Mobility and the Persistence Of Millionaires, 1999 to 2007":

1. Using a panel of tax returns from 1999 through 2007, this report finds that nearly 60 percent of households in the bottom quintile in 1999 are in a higher quintile in 2007 (and more than 16 percent are in one of the top two quintiles in 2007). Roughly 40 percent of tax returns in the top quintile in 1999 are in a lower quintile in 2007 (and more than 14 percent moved down by two or more quintiles by 2007).

2. The report also examines the persistence/transience of millionaires and finds that this group of taxpayers, which has been the focus of millionaire surtaxes among some states and some tax policy proposals at the federal level, is highly transient. Roughly 50 percent of those taxpayers who were millionaires at some point during the 1999 through 2007 period attained this status just once. In contrast, only 6 percent of this group of taxpayers were millionaires in all nine years (see chart above).

3. Millionaires are a highly transient group of taxpayers, and it appears that the realization of capital gains is at least one explanation. This income source tends to be lumpy and periodic and is a major explanation for why taxpayers reach millionaire status.

More on The Jones Act

Wall Street Journal -- President Obama has repeatedly said his Administration is doing everything in its power to expedite the oil clean-up and mitigate the damage. But in the two weeks immediately after the spill, 13 foreign governments reached out and offered their assistance. The U.S. response? Thanks, but no thanks.  Blame it on the protectionist Merchant Marine Act of 1920, also called the Jones Act, that requires ships working in U.S. waters to be built, operated and owned by Americans.

Michael Barone -- And what about the decision not to waive the Jones Act, which bars foreign-flag vessels from coming to the aid of the gulf cleanup? The Bush administration promptly waived it after Katrina in 2005. The Obama administration hasn't and claims unconvincingly that, gee, there aren't really any foreign vessels that could help. The more plausible explanation is that this is a sop to the maritime unions, part of the union movement that gave Obama and other Democrats $400 million in the 2008 campaign cycle. It's the Chicago way: dance with the girl that brung ya.

CD Visits Break 4,000,000

Sometime earlier today, visits to CD went over the 4,000,000 mark.  Thanks very much for your support!

Sunday, June 20, 2010

Progessive Income Tax = Tax on Going to College

"In 1980, an American with a college degree earned about 30 percent more than an American who stopped education at high school.  But, in recent years, a person with a college education earned roughly 70 percent more (see chart above).  Meanwhile, the premium for having a graduate degree increased from roughly 50 percent in 1980 to well over 100 percent today.  The labor market is placing a greater emphasis on education, dispensing rapidly rising rewards to those who stay in school the longest. 

For many, the solution to an increase in inequality is to make the tax structure more progressive - raise taxes on high-income households and reduce taxes on low-income households.  While this may sound sensible, it is not.  Would these same individuals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education?  We think not.  Yet shifting the tax structure has exactly this effect."

~Gary Becker and Keven Murphy, "The Upside of Income Inequality," from The American, May/June 2007.   

Happy Father's Day: It's Still a Mancession

The top two charts above display monthly jobless rates by gender, and the third chart displays employment levels by gender, with the following key points:

1. Between 2002 and 2007, jobless rates were roughly equal by gender, except during the "jobless recovery" of 2002-2003 when male unemployment exceeded female unemployment, but never by more than 0.9% (July 2003).   

2. Male unemployment reached 11.4% in October 2009, a record all-time postwar jobless rate high for men, exceeding the previous record high of 11.2% in December 1982.

3.  Female unemployment is currently at 8.8%, and has been at that level for four out of the last eight months, but never higher.  That's far below the record-high female jobless rate of 10.4% set in December 1982.  

4. The May 2010 male-female jobless rate gap of 1.7% (10.5% male vs. 8.8% female) is down from the postwar record-high gap of 2.7% last August, but is still very high by historical standards.  During (or following) the three previous recessions (1981-82, 1990-91, 2001), the peak male-female jobless rate gap averaged about 1%, and never exceeded 1.2% (April 1983).   

5. During the 1970s, the female unemployment rate was generally higher than the male rate, and jobless rate gaps exceeded 2% during recessions, but in favor of men (see middle chart). 

6. Between December 2007 and December 2009, household employment fell by almost 8.38 million jobs, and 68.5% of those were jobs held by men (5.74 million) and 31.5% were jobs held by women (2.64 million).  During this two-year period, 217 men lost their jobs for every 100 women who lost jobs. 

Read more here about The Great Mancession of 2008-2009 (and it's still not yet over).

Saturday, June 19, 2010

How Cuba's "Blogostroika," the Internet, and Social Media Could Bring Down the Castro Regime

"An increasing number of Cubans are disillusioned with socialism and are demanding change. One of the tools that Cubans are now using to recover their freedom of expression and association is the Internet, which has quickly given rise to a community of cyber-dissidents, despite the Cuban government’s efforts to make Internet use difficult. Now that the state is out of money and there are no more rights to exchange for benefits, the demand for freedom is on the rise.

One of the tools that has helped people recover the opportunity to air their opinions is the Internet. Although a common citizen cannot contract for Internet at home, and the price of an hour’s connection in a public place exceeds two weeks’ wages, a web of networks has emerged as the only means by which a person on the island can make his opinions known to the rest of the world. Today, this virtual space is like a training camp where Cubans go to relearn forgotten freedoms. The right of association can be found on Facebook, Twitter, and the other social networks, in a sort of compensation for the crime of “unlawful assembly” established by the Cuban penal code.

In a printed newspaper or magazine, on the radio or television, it is still impossible to publicize opinions that stray from the trite official script, but once connected to the Internet, many possibilities open up. Up until now, the most used are the independent blogs that have begun to appear.  Most of the “direct readers” are abroad, and from there they email the articles and posts they like to their friends and family in Cuba, who copy and multiply them. The bloggers, for their part, put copies of their work on CDs and even distribute them on flash drives. Television stations received by illegal satellite report on the contents of the blogs and conduct interviews, showing the faces of the bloggers. In this way, in less than a year, a community of cyber-dissidents was created — a blogostroika, as it is also called."

~From Cuban blogger Yoani Sanchez's article "Freedom and Exchange in Communist Cuba," published by the Cato Institute. 

California Real Estate Recovery Continues in May

Highlights from the DQNews report on May California home sales:

1.  In May, 40,965 houses and condos were sold statewide, which was an increase of 9.3 percent from April (28,111), and up 4.9 percent from the 37,967 houses sold in May 2009 (see chart).

2. The median price for a California home sold in May was $278,000, up 9 percent from $255,000 in April and up 20.9 percent from $230,000 last May (see chart).

3. The year-over-year increase was the seventh in a row (starting in November 2009, which is likely the bottom for home prices in CA), following 27 months of year-over-year declines.

4. Of the existing homes sold in May, 35.5 percent were properties that had been foreclosed on during the past year, down from 38.1 percent in April and down from 50.2 percent a year ago (see chart). The last time foreclosure resales were as low was in March 2008, 27 months ago. 

MP: This report seems to have all of the key ingredients of a real estate market in full recovery mode: 1) increasing unit sales, 2) increasing median home prices for seven consecutive months, and 3) declining foreclosed homes as a share of sales (27-month low).   

Quote of the Day: Minimum Wage

"The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that "water runs uphill," no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores."

~James M. Buchanan, 1986 Nobel laureate in economics, writing in the Wall Street Journal on April 25, 1996

Seattle Shipping Boom: +44.3% YTD from 2009

The chart above shows monthly shipping volume (TEUs = twenty-foot equivalent units, data here) at the Port of Seattle (America's 10th largest port, and third largest port on the West Coast).  As might be expected, shipping at the Seattle port is dominated by trade with China, to the extent that more than half (56%) of the shipping volume (by dollar amount) is with China, and the almost $19 billion of shipping with China in 2009 was more than the value of shipping with the next 100 countries combined.   

Shipping volume for May (198,175 TEUs) was 57.4% above last year's shipping in May, and this follows year-to-year increases of 57.2% in April, 39.4% in March, 48.2% in February and 21.7% in January.  Year-to-date, shipping volume at the Seattle port in 2010 is above last year by 44.3%.  At this pace, annual Seattle shipping in 2010 will likely exceed both last year's shipping volume of 1.58 million TEUs and the 1.7 million TEUs in 2008.   

Friday, June 18, 2010

The Job-Killing Impact of Minimum Wage Laws II

This CD post that featured a video on the job-killing impact of minimum wage laws generated some lively discussion, so I thought I would post the chart above showing evidence of the adverse effects of raising the minimum wage in the U.S. by 41% between 2007 and 2009. Of course, unemployment rates in general rose in 2008 and and 2009 due to the recession, so the chart above shows the "excess teenage unemployment" by taking the difference between: a) the teenage unemployment rate (data here) and b) the overall U.S. unemployment rate, i.e. teenage unemployment rate MINUS the overall unemployment rate.  The "excess teenage unemployment rate" rose by about 5 percentage points, from about 11% to 16% following the 41% increase in the minimum wage from $5.15 in early 2007 to $7.25 by mid-2009. 

Bottom Line: As much as politicians and other advocates of the minimum wage might pretend otherwise, the laws of supply and demand (like the law of gravity) are NOT optional. 

The Companies Hiring The Most Right Now

"Even as the U.S. economy struggles to emerge from last year’s recession, many large businesses are growing enough to hire hundreds of new employees. Forbes and Indeed.com, a website that aggregates job listings from online classifieds and company websites, compiled a list of the 10 companies with more than 2,500 employees that have the most job postings right now."

HT: Steve Bartin

Happy Father's Day: Welcome to the Mancession

Cartoon by David Horsey.

HT: Gettingrational

Median CPI Annual Inflation Falls for 20th Straight Month to a Record Low of 0.5% = No Inflation

According to the Cleveland Fed's report yesterday, the median CPI increased by only 0.50% in May over the same month last year, the same as April's annual increase of 0.50%.  This was the 20th consecutive month  that the median CPI annual inflation rate dropped or stayed the same, and the 0.50% inflation rates in April and May are the lowest year-to-year inflation rates in the history of the Cleveland Fed's series back to 1984 (see chart above). In contrast, the regular CPI has increased by 2.0% over the last year (May 2009 to May 2010).

Historically, the median CPI has been 50% more accurate at gauging future inflation than the traditional CPI (based on the Cleveland Fed's research), and the median CPI is certainly not now showing any signs of inflationary pressures.  In fact, a stronger case could be made for deflation right now than inflation, according to: a) the median CPI being at a 26-year low, and b) the decelerating growth of the money supply (annual growth of 2% or below each week since early March) , see chart below (data here).

As "inflation skeptic" Bob McTeer (former Dallas Fed president) wrote in May on his blog:

"To repeat the obvious, because others won’t, money growth is almost flat. Flat money growth does not cause inflation—especially when we have enormous slack in the economy along with rapid productivity growth and declining unit labor cost. We may get inflation in the next few years, but, if so, it will be based on money growth yet to happen. It hasn’t happened yet."

For the "opposing view," see Scott Grannis's recent post "Inflation Pressures are Building in the Production Pipeline."

Thursday, June 17, 2010

Keys to the City You Can Play: 60 Pianos in NYC

NEW YORK — "Consider them keys to the city. Anyone who gets a sudden itch to tickle the ivories will be able to play free public pianos in 50 places throughout New York City, from the Coney Island boardwalk to the Metropolitan Museum.

Mayor Michael Bloomberg announced Thursday that 60 pianos will be available in New York City until July 5. The concept was conceived by British artist Luke Jerram.  Some of the pianos will be outside. They'll be equipped with tarps in case of rain."

HT: Joyce Howe

May LA Port Shipping Reaches 19-Month High

The Port of Los Angeles recently released new data for container statistics, which show that shipping volume at the L.A. port reached a  19-month high of 689,421 TEUs (twenty-foot equivalent units) in May, a 20% increase over last May's volume of 574,827 TEUs (see chart above).  Comments from the Port of Los Angeles for May include:

•Strengthening of the overall trade environment

•Vessel services were upsized to handle the surge of volume

•Vessels are coming in at capacity

•Large amount of empty returns to Asia to support the increase of import volumes and replenish the shortage of equipment in Asia

Thanks to Erik Babosci

Americans Are Addicted

But it's not to oil or meth.  It's something else (you've probably got one, it's "unique and costly"), read about it here in today's WSJ. 

Median Price San Francisco Home Tops $400k in May for the 1st Time in 21 Mos., Since Sept. 2008

DQNews -- "Sales rose across the Bay Area last in May in many mid- to high-end neighborhoods, helping to push the median sale price over $400,000 for the first time in 21 months. But as tax credits, low mortgage rates and an ample supply of homes for sale fueled the $500,000-plus market, sales fell in many affordable inland areas where investors and first-time buyers faced a dwindling inventory of low-cost foreclosures.

In May, a total of 8,264 homes sold in the nine-county Bay Area, up 18% from 7,003 in April and up 11.0% from 7,447 in May 20009 (see chart).  Last month the median paid for all new and resale houses and condos combined jumped to $410,000, up 10.8% from $370,000 in April and up 20.1% from $341,500 in May 2009. The median has risen on a year-over-year basis for eight straight months, though in May it was still 38.3% below the $665,000 peak in June/July 2007."

Philly Fed Indexes: Not as Bad as Reported?

The Philadelphia Federal Reserve released data today on regional manufacturing activity, and most news reports focused on the decline in the current activity index, which fell from 21.4 in May to 8.0 in June, the lowest reading in ten months.  The chart above displays the current index back to 1990 and shows that it can both be pretty volatile month-to-month, and often falls below zero, even in economic expansions. 

For example, in the longest and strongest economic expansion in U.S. history from March 1991 to March 2001, the current activity index was sometimes negative.  And in the several year period following the last recession, there were months of negative readings in 2002 and 2003.  So the fact that the current activity is still positive at 8.0 in June shouldn't be a major concern for now.   

What didn't receive as much news attention as the current index was the future activity index, which has stayed around 40 for the last 14 months and remains at a level consistent with future economic expansion in the years to come, e.g. comparable to the levels in 2002 and 2003.  According to the report, "Firms expect continued growth in their manufacturing business over the next six months, with over half of the firms expecting growth in activity, new orders, and shipments."

Rail Traffic Increases for 15th Straight Week

Highlights from today's report on Weekly Traffic of Major U.S. Railroads for the week ending June 12 (Week 23):

1. Carloads originated last week of 288,973 were 10.5% above the comparable week in 2009, and cumulative year-to-date carload volume is 7.2% above last year.

3. Intermodal Units Originated (trailers and containers) at 223,075 were 17.7% above the same week last year, and cumulative year-to-date volume is 11.3% above 2009. 

4. Estimated ton-miles were up in Week 23 by 12.5% vs. 2009, and by 8.2% so far this year compared to last year. 

5. This marks the 15th consecutive week (starting in late February) that rail traffic (both carloads and intermodal units) is above the comparable week last year. 

6. For the 19 commodity groups tracked by the American Association of Railroads, 17 are up year-to-date compared to last year, and only two have decreased (paper and pulp, and coal). The strongest gains have been in shipments of metallic ores (85%), metals (65%) and motor vehicles (35%). 

7. Canadian and Mexican rail volumes have also registered strong gains, both last week and year-to-date.      

8. Combined North American rail volume for the first 23 weeks of 2010 on U.S., Canadian and Mexican railroads totaled 8,463,154 carloads, up 10.2 percent from last year, and 5,940,938 trailers and containers, up 12 percent from last year.


House of Representatives Committee on Ways and Means

Subcommittee on Income Security and Family Support
Hearing to Review Responsible Fatherhood Programs
B-318 Rayburn House Office Building - beginning at 10:00 AM, June 17

FOCUS OF THE HEARING: The hearing will focus on the effectiveness of Responsible Fatherhood Programs in improving the relationship between non-custodial parents and their children, as well as their ability to provide financial support.

Testimony By Mark J. Perry Ph.D.

Scholar, The American Enterprise Institute, Washington, D.C.
and Professor of Finance and Business Economics, University of Michigan-Flint

Click here to view testimony on "The Great Mancession of 2008-2009."

Largest-Ever 14-Mo. Increase of the Leading Index

June 17 (Bloomberg) -- "The index of U.S. leading indicators rose 0.4 percent in May, signaling the world’s largest economy will keep expanding in the second half of the year. The Conference Board revised April data to show no change rather than the previously reported 0.1 percent drop."

Remember all of the gloomy headlines after last month's original estimate of a 0.1 point decrease (Note: the Bloomberg report incorrectly calls it a 0.1 percent drop, when it should have been a 0.1 point drop, or a 0.09 percent drop), which has now been revised to show no change in April?

"Key US indicators point to economic recovery losing steam"

"Leading indicators drop, experts still expect “sluggish” economic growth"

"US Economy: Leading Index Signals Recovery to Cool"

"Uh oh: Leading economic indicators slip in April"

"US: Leading Index Dips; Slower Growth Ahead"

MP: Given today's revisions, the leading index has increased or stayed the same for the last 14 months, which is only the third time that has happened since 1998.  The 12-point increase in the leading index from the most recent March 2009 low of 97.9 to the all-time May high of 109.9 is the largest 14-month point gain in the history of the Conference Board's leading index going back to 1959 (see chart above).  In percentage terms, the 12.26% increase over the last 14 months is the highest since 1984.   

Also, market maven Dennis Gartman strongly emphasizes the "Ratio of Coincident to Lagging Indicators" as an accurate metric to assess turning points in the business cycle, and featured a graph of this ratio back to 1958 in today's "The Gartman Letter"turned higher in early 2009 and it has been trending higher ever since."  Today's Conference Board report shows that the "Ratio of Coincident to Lagging Indicators" increased from .9314 in March to .9351 in April to .9397 in May. 

Wednesday, June 16, 2010

May So. California Home Sales Highest in 4 Years

DQNews -- "Southern California May home sales rose in all but the lowest price categories as buyers took advantage of tax credits and low mortgage rates. The median price paid topped $300,000 for the first time in 20 months, largely because the ultra bargains have been drying up in the low-cost inland areas while sales have increased in the pricier coastal neighborhoods." 

Other highlights include:

1. A total of 22,270 new and resale houses and condos closed escrow in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 9.7 percent from 20,299 in April, and up 7.2 percent from 20,775 in May 2009 (see chart above).

2. May sales were the highest for that month since May 2006, but they still fell 15.0 percent short of the average number sold in May since 1988, when DataQuick’s statistics begin. The 9.7 percent increase in sales between April and May compares with an average change of 6 percent since 1988.

3. Foreclosure resales accounted for 33.9 percent of the resale market last month, down from 36.4 percent in April and 49.8 percent a year earlier.

4. The median paid for a Southland home rose to $305,000 last month, up 7.0 percent from $285,000 in April, and up 22.5 percent from $249,000 in May 2009. The May 2009 median was just $2,000 higher than the median’s post-housing-boom low of $247,000 in April 2009.

“The important thing to remember, though, is that what we saw in May was partly driven by government stimulus,” said MDA DataQuick President John Walsh. “In the second half of the year the market will have to stand on its own again, barring new forms of government involvement." 


WASHINGTON -- "The home-buyer tax credit deadline would be extended three months following a vote this afternoon in the Senate. Senators voted 60 to 37 to approve the extension for the credit, which has a current deadline of June 30 to close a purchase. The credit provision is part of a larger jobs and tax package that both chambers must still vote on before it becomes law."

Credit Card Delinquencies Improve in May

1. NEW YORK — "Major credit card issuers posted improved results for May, in another sign consumers are getting a handle in paying back their debts. Delinquency rates have been steadily improving for five months, indicating that consumers have gotten control of their debt payments even as the jobless rate has remained high."

The Job-Killing Impact of Minimum Wage Laws

Factory Output Continues to Expand

ABC NEWS --Industrial production rose 1.2 percent in May as manufacturing remained a key engine of the economic recovery. The Federal Reserve says output at the nation's factories, mines and utilities rose over April's 0.7 percent increase. The industrial sector's gains reflect the growing strength of the recovery.

MP: On an annual basis, industrial production increased 7.6% in May compared to last year, which is the largest annual gain since January 1998 (see chart).

Update: Bottom chart above shows the industrial production index, by request.  The index reached an 18-month high in May of 103.5, the highest level since November 2008.  Separately, capacity utilization reached a 19-month high in May of 74.7%, the highest since October 2008.    

Update: See Scott Grannis' related post U.S. industrial production in a solid recovery, where he comments:  "U.S. industrial production has risen at a 8.8% annualized pace since hitting bottom in June 2009. At this pace industrial production will have completely recovered to its former highs in 12 months."

Note: If that happens it will be a much faster recovery than the period following the 2001 recession, when it took industrial production almost 4-and-a-half years to recover from the June 2000 high of 104.25.  It wasn't until October 2004, 52 months later, that factory output exceeded 104.25.  Scott adds: "The pace and the magnitude of the current recovery both exceed that of the recovery from the 2001 recession. I just don't see why the gloom and doom persists."

Update from First Trust: "Manufacturing continues to lead the V-shaped recovery. Since the low in June 2009, manufacturing production is up at an 8.8% annual rate, which is faster growth than even during the tech boom of the late 1990s. We expect rapid gains in production to continue."

The Flipper Bridge: Hong Kong to China

Hong Kong drives on the left side of the road (thanks to the British Empire) and mainland China drives on the right side. So how do you prevent crashes when driving on a bridge between them?

Answer: The Flipper Bridge, find out more here.

Green Oil, The Nearly Perfect Fuel

1. “Oil may be the single most flexible substance ever discovered. More than any other substance, oil helped to shrink the world. Indeed, thanks to its high energy density, oil is a nearly perfect fuel for use in all types of vehicles, from boats and planes to cars and motorcycles. Whether measured by weight or by volume, refined oil products provide more energy than practically any other commonly available substance, and they provide it in a form that’s easy to handle, relatively cheap, and relatively clean.’’

~Manhattan Institute’s Robert Bryce in “Power Hungry."

2. "Fossil fuels have been one of the great boons both to humanity and the environment, allowing forests to regrow (now that we don't use wood for heating fuel or grow fuel for horses anymore) and liberating billions from backbreaking toil. The great and permanent shortage is usable surface land and fresh water. The more land we use to produce energy, the less we have for vulnerable species, watersheds, agriculture, recreation, etc.

As counterintuitive as it may be to say so, oil is a green fuel, while "green" fuels aren't. And this spill doesn't change that fact."

~Jonah Goldberg, "Oil: The Real Green Fuel"

Tuesday, June 15, 2010

The Jones Act and The Power of Unions

"Two days after Katrina struck the Gulf Coast, Homeland Security Secretary Michael Chertoff got approval for a blanket waiver of the Jones Act so that oil and natural gas could be brought into the area on non-approved ships. Meanwhile, President Obama and others continue to insist that such a blanket waiver is "not needed at this time."

Who is benefiting from this law's enforcement? One major beneficiary is organized labor. Ships that meet the requirements of the Jones Act are crewed by unionized labor and granting waivers to it would bring lower-wage labor into competition with those nice union jobs, potentially threatening them. One theory is that President Obama does not want to risk alienating the labor vote by waiving the Jones Act even for a short period of time. President Bush had no such concerns as labor wasn't going to vote for him anyway."

~Steve Horwitz

ASA Staffing Index: 23.6% Growth From 2009

"The American Staffing Association (ASA) Staffing Index estimates weekly changes in the number of people employed in temporary and contract work. ASA developed the index to provide a current measure of staffing industry employment trends."

For the week of May 31, the ASA Staffing Index is 23.6% above the same week last year, and this marks the seventh consecutive week of year-to-year growth of above 20%, the 16th consecutive week of double-digit annual growth, and the 22nd straight week of positive growth compared to the same week in the previous year.

Temporary help employment tracked by the ASA is considered to be an accurate leading indicator of employment trends. According to the ASA, temporary job increases typically lead gains in broader employment growth by three months when the economy is emerging from a recession, and the continuing strength in temporary hiring signals future employment growth for the U.S. economy.

Reason.tv: Matt Ridley, The Rational Optimist

Matt Ridley discusses rational optimism, why pessimism sells, and how things keep getting better all the time.

Interactive Map: Where Americans Are Moving

Interesting interactive map of U.S. migration patterns in 2008 from Forbes.  Red lines represent outflow, black lines are inflows.  Check out the difference between LA and Detroit (lots of red) vs. Atlanta and Dallas (lots of black). 

Empire State Index Pos. for 11th Month

From the NY FED's Empire State Manufacturing Survey:

"The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved in June.  The general business conditions index inched up to 19.6, slightly above its May reading of 19.1. The index has now been above zero for eleven consecutive months, indicating an ongoing expansion in business activity. The new orders index rose modestly, to 17.5, and the shipments index climbed to 19.7. The unfilled orders index was negative for a third consecutive month, at -1.2. The delivery time index rose more than 16 points to 9.9, suggesting that delivery times lengthened in June. The inventories index remained near zero after posting positive readings in March and April, indicating that inventory levels have stabilized.

Future indexes remained firmly in positive territory, although the readings, like last month's, suggest that respondents' optimism had fallen slightly from the relatively high levels reached in prior months. The future general business conditions index declined for a second consecutive month, edging down a little more than a point to 40.7."

The Good Old Days Are Now

Offered for sale in the 1964 Radio Shack Catalog:

David Henderson at Econlog points to an interesting website that has an online archive of Radio Shack catalogs back to 1939.  David comments, "Choose any date earlier than 10 years ago and you get a feel for just how much our standard of living has increased. The items are generally what we regard as junk--and they're expensive."

One example from the 1964 catalog is the "Moderately priced, excellent stereo system" pictured above for $379.95.  That doesn't seem too expensive, except that those are 1964 dollars, and the average wage then was only about $2.50 (data here).  Measured by the cost of work time required at the average hourly wage, that "moderately priced" stereo would have required about 152 hours of work (almost an entire month, ignoring taxes) in 1964 to earn enough income to purchase the stereo equipment. 

Working 152 hours at today's average hourly wage of about $19, the average American today could earn almost $3,000, and could purchase something today that is infinitely superior to the 1964 stereo (an entire home theater system with a large-screen TV, a few laptop computers and iPods for the entire family?).  Or we could alternatively say that today's consumer only has to work about 5-6 hours to earn enough income to purchase an iPod, nowhere close to the 152 hours worked by a consumer in 1964, for a personal stereo system that most would prefer to the 1964 model.  

Here's one other way to see how expensive that stereo system was in 1964: Working at the minimum wage of $1.15 per hour in 1964, it would take 330 hours of work for a teenager to earn enough income to purchase that stereo system (almost the entire summer working 30 hours per week for 11 weeks).  Today a teenager working at the minimum wage of $7.25 could earn enough income in about two days to purchase an iPod.    

Considering how expensive stereo equipment was back in the 1960s (the $380 model was considered "moderately priced" so there were probably many much more expensive models), it probably makes sense that Radio Shack offer many "do-it-yourself" kits to build your own stereo equipment (and later kits for computers). In today's world of iPods and affordable computer and electronic equipment, who would even think of buying a kit to build your own stereo system or computer?

Monday, June 14, 2010

Worst Yet: Disapprove: 49.9% Approve: 45.9%

Source: Pollster.com

3 Days After Explosion, Dutch Gov't. Offered Help; Administration Response: Thanks But No Thanks

Houston Chronicle -- "Three days after the explosion of the Deepwater Horizon in the Gulf of Mexico, the Dutch government offered to help. It was willing to provide ships outfitted with oil-skimming booms, and it proposed a plan for building sand barriers to protect sensitive marshlands.

The response from the Obama administration and BP, which are coordinating the cleanup: “The embassy got a nice letter from the administration that said, ‘Thanks, but no thanks,'” said Geert Visser, consul general for the Netherlands in Houston. Now, almost seven weeks later, as the oil spewing from the battered well spreads across the Gulf and soils pristine beaches and coastline, BP and our government have reconsidered.

Federal law has also hampered the assistance. The Jones Act, the maritime law that requires all goods be carried in U.S. waters by U.S.-flagged ships, has prevented Dutch ships with spill-fighting equipment from entering U.S. coastal areas."

Markets in Everything: Box-Office Futures

LA TIMES -- "Box-office futures have passed a final regulatory hurdle, clearing the way for the first bets to be placed in the near future, and overcoming objections by Hollywood that sought to block it.

In a 3-2 vote, the Commodity Futures Trading Commission on Monday afternoon approved a contract created by the company Media Derivatives that would allow traders to bet on the gross receipts that a movie pulls in during its opening weekend.

Media Derivatives already won CFTC approval for the exchange on which these contracts would be traded – the Trend Exchange -- but it needed the CFTC to sign off on the contract in order to allow traders to begin placing positions."

HT: Steve Bartin

More on the Jones Act

Frontal Assault on the 30-Year Fixed Rate Mortgage

A few weeks ago, I had a CD post "Should We End the 30-Year Fixed-Rate Mortgage?", as a follow-up to a discussion Arnold Kling started.  Now the WSJ has a related article today "Radical Ideas From a Federal Housing Bureaucrat," about Patrick Lawler, chief economist of the Federal Housing Finance Agency and his "frontal assault on the most sacred element in U.S. housing-policy dogma: the 30-year fixed-rate mortgage loan, providing the right to refinance at any time, with no prepayment penalty." Here's more from the article:

"Americans are very attached to their 30-year fixed-rate freely prepayable mortgages. They like not having to fuss about the possibility of 28% interest rates in 2032, even though most of us will move or die long before then. They love to refinance every time rates drop and then brag to their neighbors about how much they are saving per month. What they don’t stop to realize often enough is that they are paying a very large price for that privilege– twice.

1. Mortgage rates are higher than they otherwise would be. That’s because lenders and mortgage investors must build in protection for the risk that we will prepay and stick them with a lower yield than they were anticipating. Mr. Lawler estimates that Americans pay at least an extra 0.25 to 0.50 percentage point in rates because of this option to prepay without penalty. They also pay another premium-–sometimes a percentage point or two–for having a long-term fixed rate. Over 30 years, that translates into some real money, but no one ever mentions that when bragging to the neighbor.

2. Our nation has created the likes of Fannie, Freddie and the FHA to facilitate these oddball 30-year fixed-rate loans, which aren’t normally provided by the private market. For a long while, that seemed like a free lunch. Fannie and Freddie, we were told, were far better able to handle those complex risks than we dumb consumers ever could. But since the government had to rescue Fannie and Freddie in 2008, the taxpayers’ tab for this indigestible lunch has swollen to $145 billion, and it’s still rising. So that’s the second time we’ll pay for our irrational love of American-style mortgages – only this time, we all pay, not just mortgage borrowers.

Meanwhile, other wealthy nations–notably Canada–do without our kind of mortgages and yet somehow manage to have homeownership rates similar to ours. They do not pretend that there are risk-free ways to buy houses on credit."

MP: Actually, the homeownership rate in Canada (69 percent) is higher than in the U.S. (67.2 percent).

HT: Sprewell

Truckonomics: Truck Sales Shift Into High Gear

The retail sales report for May was generally considered to be a disappointing sign that the economic recovery was stalling, as consumers unexpectedly "ratcheted back spending on everything from cars to clothing in May," according to the WSJ.  But on both a year-to-year basis, and year-to-date basis, vehicle sales are booming, rising by 19.1% in May this year vs. May last year, and by 16.6% year-to-date compared to 2009 sales through May (data).  So we maybe shouldn't give up yet on the American consumer, and here's a report about robust consumer spending in May on an important economic indicator: trucks (see related CD post here):
NEW YORK (AP) – "If you want a hint about the economic recovery, follow that truck. Pickups are a kind of rugged indicator of the nation's financial health. When times are good, contractors buy more of them to carry tools around for landscaping and lumber to build homes. Weekend haulers also gravitate to them even though cars get better mileage.

And lately sales have started shifting into a higher gear. Americans bought 151,000 pickups last month, 19 percent more than a year ago. Sales of full-size pickups, especially popular among contractors and builders, grew even faster.  This year, pickup sales have been gaining momentum. Through May, Americans bought 11 percent more than they did in the first five months of last year and the sales pace has been accelerating."

Sunday, June 13, 2010

What Do Protectionism, Union Power and Jones Act Have to Do with the Cleanup in the Gulf? A LOT

1. "The Merchant Marine Act of 1920 is a United States Federal statute that regulates maritime commerce in U.S. waters and between U.S. ports. Section 27, also known as the Jones Act, requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. The purpose of the law is to support provide protectionism for the U.S. merchant marine industry."
2. David Warren:  "We learned a simple thing this week: that the BP clean-up effort in the Gulf of Mexico is hampered by the Jones Act. This is a piece of 1920s protectionist legislation, that requires all vessels working in U.S. waters to be American-built, and American-crewed.  So while, for instance, the U.S. Coast Guard can accept such help as three kilometres of containment boom from Canada, they can't accept, and therefore don't ask for, the assistance of high-tech European vessels specifically designed for the task in hand."

3. Howard Portnoy: "In order to accept offers of help, which have come from Belgian, Dutch, and Norwegian firms that claim to possess some of the world’s most advanced oil skimming ships, Obama would need to waive the Merchant Marine Act of 1920 (also known as the Jones Act).  So why not simply waive the act? Other presidents have under similar circumstances. George W. Bush waived the Jones Act following Hurricane Katrina, allowing foreign ships into Gulf waters to aid in the relief effort. 
The explanation of Obama’s reluctance to seek this remedy is his cozy relationship with labor unions. Joseph Carafano of the Heritage Foundation is quoted as saying: “The unions see it as … protecting jobs. They hate when the Jones Act gets waived, and they pound on politicians when they do that. So … are we giving in to unions and not doing everything we can, or is there some kind of impediment that we don’t know about?"

HT: Joe Lais

More Gender Bias? 85% of Op-Eds Written by Men

The Problem: "Women are far from achieving parity on the editorial pages of America: Between 80 and 90 percent of a newspaper's opinion essays—often called "op-eds"—are written by men."

The Solution: "Since women currently do not submit op-eds with anywhere near the frequency that men do, we target and train women experts in all fields to write for the op-ed pages of major print and online forums of public discourse. The mission of the OpEd Project at Stanford University is to bring about a sea change in our national conversation, which is currently overwhelmingly dominated (85%) by men."