Saturday, June 05, 2010

Clothing Inflation Gender Gap

The chart above shows the CPI for Men's Apparel (data here) and Women's Apparel (data here) from January 1978 to April 2010. Men's clothing has appreciated by 1.06% per year since 1978, which is more than double the annual rate of appreciation for women's clothing (0.52%).  Compared to 1978, men today are paying 40% more on average for their clothing, and women are paying only 20% more.  According to the selective concern among the "gender activists" about gender imbalances, any gender outcomes that favor men can be traced to overt or "unexamined" sex discrimination. 

Q: What are we then to make of these gender imbalances in favor of women for clothing prices?  Is this an outcome of price discrimination because women are more "ruthless" in their shopping habits for clothing, male demand for clothing is more "price insensitive," and therefore men (women) pay higher (lower) prices. 


Company Website: Can You Spot the IT Guy?

Link to company website.

10 Big Companies With BIG Hiring Plans

From The Street: 10 big companies that have announced big plans to hire:

1. Boeing: The airplane maker plans to build a new facility in South Carolina and hire as many as 150 employees for the new site. There are more than 400 open positions on the company's Web site. If the Boeing NewGen Tanker is selected as the U.S. Air Force's next aerial refueling aircraft, the company could add as many as 7,500 jobs in Kansas.

2. JPMorgan Chase: CEO Jamie Dimon said in a statement the company plans to add almost 9,000 jobs in the U.S. The company's Web site lists more than 5,000 job openings.

3. Intel will aim to add more college graduates as part of the Invest in America Alliance. There are more than 700 open positions in the U.S. on Intel's career Web site.

4. Nationwide Financial Services said it plans to fill approximately 1,400 open positions across the country. This is an increase from last year at this time, when there were 600 open positions at the company.

5. Ford is shifting some work typically done by suppliers in Mexico to the U.S. The carmaker plans to spend $135 million to design and produce hybrid-electric vehicles. Ford plans to hire more than 50 engineers and add 170 more jobs transmission plants in Michigan.

6. IBM announaced plans to open a new technology service center in Columbia, Mo. The opening of this new service center would create as many as 800 technical jobs. Job hunters can also find almost 2,000 open positions posted on IBM's Web site in a wide range of categories, including technical, management, research and sales.

7. Google hired more than 800 people during the first quarter, bringing the company's headcount to 20,621, up from 19,835 in December. And the search giant doesn't plan to stop. Google has announced plans to bring on 2,000 more employees this year.

8. General Motors. Since last July, the company has restored or created more than 9,100 jobs in the U.S. and Canada. GM's career Web site has more than 100 jobs listed, but the company plans to create or retain 1,600 jobs by adding new plants in New York, Ohio, Indiana and Michigan. These factories will build fuel-efficient cars and trucks.

9. GE recently announced plans to add 1,300 jobs in Michigan during the next five years. The company recently opened a new facility in Wayne County, Mich., and hired 220 people for the site. There are more than 2,000 job openings on the company's career site. As a member of the Invest in America Alliance, GE has also committed to doubling the number of recent graduates it hires this year.

10. Morgan Stanley plans to add at least 50 employees in Charlotte, N.C. Spokesman Along with the 50 open jobs in Charlotte, Morgan Stanley's Web site lists more than 1,000 open positions nationwide, as well as almost a 1,000 open jobs outside the U.S. Most of the positions are in accounting, operations and wealth management.

HT: Steve Bartin

April International Air Freight Volume Up by 25.2%

Despite a 2.4% decrease in passenger demand for internationl travel in April due to cancellations following the eruption of  the volcano in Iceland, international freight traffic increased by 25.2% compared to April of last year, following a 28.1% improvement in March.  Details here.  

May Adjusted Jobless Claims Fall to 21-Month Low

I haven't featured this pair of charts for awhile, showing: a) jobless claims vs. the labor force and b) jobless claims as a share of  the labor force, both updated through May (BLS data here and here).

The top chart shows why unadjusted jobless claims are meaningless: the size of the U.S. labor force has almost doubled over the last 42 years, from 77.57 million in 1968 to the current level of more than 154 million.  The bottom chart shows jobless claims adjusted for the size of the U.S. labor force.  Jobless claims averaged 455,250 in May, which is 0.2948% of the May labor force of 154,393,000, and represents a 21-month low (lowest since August 2008). Jobless claims as a percent of the labor force have declined in 13 out of the last 14 months, starting last April. 

This measure of initial jobless claims, adjusted for the increasing size of the U.S. labor force over time, shows that jobless claims peaked during this recession above the levels of the last two recessions (1990-1991 and 2001), but were never anywhere close to the levels of the previous three recessions in the mid-1970s and early 1980s, and about the same as the 1969-1970 recession. The sharp reduction in adjusted jobless claims from the March 2009 high of 0.415% follows the same pattern of sharp reductions at the end of each of the last six recessions.  Call it an upside-down V-shaped recovery. 

How Currency Manipulation Creates American Jobs

Updated chart based on a previous CD post:

The chart above shows (data here) that more than 53.2% of all U.S. imported goods are: a) industrial supplies (chemicals, commodities, raw materials, etc.), and b) capital goods (machinery, equipment, parts, tools, etc.) which are being purchased by AMERICAN COMPANIES as inputs for production in the United States. Being able to purchase Chinese and other foreign inputs at the lowest possible price makes American companies MORE competitive, sell MORE of their products, and hire MORE American workers. Therefore, to the extent that American companies buy their inputs from China, one could argue that China's currency "manipulation" of appreciating the U.S. dollar helps American companies and actually SAVES and CREATES jobs in America.   

Friday, June 04, 2010

Jobs Machine: Wal-Mart Plans to Add 500,000 Jobs

Reuters -- "Internationally, where business units account for about one-quarter of Wal Mart's total sales, "we need to continue to set an impressive pace of growth and have a constant emphasis on returns," Chief Executive Mike Duke said.

As part of that growth, Wal-Mart will add 500,000 jobs to a base of 2.2 million. Wal-Mart's international business is growing at a much faster clip than in the United States. The company already has 4,110 stores in 14 countries besides the United States and is eyeing an entry into Russia."

Temporary Help Workers, Overtime Hours, Manufacturing Employment Increase in May

It's not all bad, here are some highlights from today's BLS employment report:

1) The number of temporary help workers increased by 31,000 in May to 2,086,000 employees (not counting temporary Census workers), the highest level in 18 months ago, since November 2008 (see graph above). The number of temporary workers increased in May for the 8th straight month, following 23 straight months of declines, and it marks the first time since 1999 of eight consecutive monthly increases. The 361,600 increase in temporary jobs since last October is the largest 8-month increase since this data series started in 1990.

2) Average manufacturing overtime hours increased to 4.1 hours in May (from 3.9 hours in April), reaching the highest level since 4.2 hours in November 2007, thirty months ago (see graph). Manufacturing overtime hours have increased or stayed the same in 13 out of the last 14 months, and overtime activity in the manufacturing sector has now returned to its pre-recession levels of 2007, reflecting continued expansion in U.S. factory output.

3)  Along with the increase in manufacturing overtime to pre-recession levels, the increase of 29,000 in manufacturing jobs in May is another sign that the manufacturing sector is expanding and continuing on a healthy path to recovery. Year-to-date, manufacturing employment has increased by 126,000 jobs, which is the first record of 5 consecutive monthly gains in factory jobs since 2006, and the largest 5-month increase in manufacturing employment since early 1998 - more than 12 years ago.

Rail Traffic Reaches 18-Month High in May

The Association of American Railroads (AAR) reported yesterday that intermodal volume on U.S. freight railroads for the week ended May 29, 2010, reached its highest level since November 2008. Intermodal traffic was up 35.5% from last year and 10.3% from 2008. Unlike 2008 and 2009, Week 21 of 2010 did not include the Memorial Day holiday.  Highlights include:

1. Compared with the same week in 2009, container volume increased 37.5% while trailer volume rose 25.2%. In comparison to 2008, container volume was up 19.4 percent while trailer volume fell 23.3 percent.

2. U.S. railroads also originated 286,665 carloads during the week ended May 29, up 21.9% from the comparable week in 2009, but down 8.9% from 2008.

3. All 19 carload commodities increased from the comparable week in 2009 and three groups posted increases over 2008 levels. Farm products excluding grain posted the most significant increase, up 41.1 percent over 2008.

4. For the first 21 weeks of 2010, the cumulative volume of carloads for U.S. railroads was up 7.2% from 2009, but down 13.5% from 2008, and the volume of trailers and containers was up 11.5% percent from 2009, but down 7.3% from 2008.

5. Combined North American rail volume for the first 21 weeks of 2010 on U.S., Canadian and Mexican railroads was up 10.2% from last year, and trailers and containers increased by 11.9% from last year.

Thursday, June 03, 2010

Residual Bearishness: Flashback

Sound familiar?

If America’s economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent change, the sort of upheaval that happens once in 50 years.

The outward sign of the change is an economy that stubbornly refuses to recover from the recession. In a normal rebound, Americans would be witnessing a flurry of hiring, new investment and lending, and buoyant growth. But the U.S. economy remains almost comatose. Unemployment is still high; real wages are declining. The current slump already ranks as the longest period of sustained weakness since the Great Depression.

The 1930s was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought, the debt hangover, the banking collapse, the real estate depression, the health-care cost explosion, and the runaway federal deficit. "This is a sick economy that won't respond to traditional remedies," said Norman Robertson, chief economist at Mellon Bank. "There's going to be a lot of trauma before it's over."


For A Double-Dip, You'll Have to Go for Ice Cream

"The concern about a double dip is largely a function of what I'd call residual bearishness. Stung by excessive optimism in 2007, the econo-pundit community remains in a reflexive, dour crouch. Since this recovery began in the spring of 2009, it has been widely disbelieved and dismissed. Fretting about the double dip is as much about where we've been as where we are.

If you want a double dip this summer, you'll have to go to Carvel or Baskin-Robbins." 

~Daniel Gross in

The Pickup Truck Indicator: Recovery is Real

From CNBC:

Vehicle sales at AutoNation (America's largest auto retailer with 200 locations nationwide) were up by 22% in May compared to last year, but pickup truck sales were up by 50% year-over-year in May. That's a huge sign of strength for American small businesses, according to AutoNation Chairman and CEO Mike Jackson:

"I've always said, when you want to know when this economy is going to turn, just watch the pickup sales.  All those sales are small businesses and entrepreneurs, and when they see the prospect for better business, they're going to go out and finally buy a new pickup truck. So this is a key indicator of what's going on in the U.S. economy.  This is small business America saying that the worst is over, I see opportunities in the future, I feel confident enough to go out and buy a new truck.    

Pickup trucks are bought by small business entrepreneurs who have their finger on the pulse of the U.S. economy. It's an expression of confidence in future of economy. They don't buy until they see the prospects for business are brighter."

HT: Mike LaFaive

International Evidence: Life Expectancy and GDP

The Gapminder graph above (click to enlarge, or access larger version available here) shows some cross-sectional statistical evidence of the strong link between: a) GDP per capita and b) Life Expectancy for countries around the world, to follow my CD post from yesterday about the time series evidence for the U.S.

In the graph above, high-income countries (approximately $20,000 to $50,000 in real, per capita GDP) have life expectancies at birth of about 80 years, which is about 25 years longer than the average life expectancy of about 55 years for the low-income countries (less than $2,000 in per capita GDP). As a rough estimate, a country’s life expectancy at birth increases by about one additional year for every $1,500 increase in real GDP per capita.

See more here at the Enterprise Blog

ISM Non-Manufacturing Back to 2007 Levels

From today's Non-Manufacturing ISM Report On Business:

"ISM's Non-Manufacturing Business Activity Index in May registered 61.1 percent, an increase of 0.8 percentage point when compared to the 60.3 percent registered in April (see chart above). Sixteen out of 18 industries reported increased business activity, and one industry reported decreased activity for the month of May. One industry reported no change from April.

The industries reporting growth of business activity in May — listed in order — are: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Management of Companies & Support Services; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Mining; Wholesale Trade; Construction; Transportation & Warehousing; Information; Retail Trade; Professional, Scientific & Technical Services; Other Services; Public Administration; Utilities; and Finance & Insurance. The only industry reporting decreased business activity in May is Health Care & Social Assistance."

MP: The ISM Business Activity Index for non-manufacturing industries has now been in expansion (index > 50) in 9 out of the last ten months, and for six straight months, both for the first time since 2007, before the recession started.  The last time the Business Activity Index was above 61 or higher was February 2006, more than four years ago.  These recent improvements in the ISM Business Activity index provide more evidence of an ongoing, V-shaped economic recovery. 
Note: The overall ISM Non-Manufacturing Composite Index (NMINMI (started in January 2008), and that reading still signals expansion (above 50).   And as Brian Wesbury points out, the Business Index is more closely related to real GDP growth than the overall NMI.

Fifth Month of Double-Digit Auto Sales Increase in May for the First Time in 26 Years, Since 1984

DETROIT NEWS -- "Auto sales rose in May after sunny Memorial Day weekend deals helped consumers shake off economic worries revived by sharp swings on Wall Street. Compared with last May, when Chrysler LLC was bankrupt and consumer demand had plunged, last month's sales were 19.1% higher at 1.1 million cars and light trucks (see chart above). Led by Chrysler, Detroit's automakers reported double-digit gains in May, padded by large sales to fleet customers."

MP: GM sales increased by 17.5% in May, Ford sales by 22% and Chrysler by 32.7%, versus May 2009 (data here).  For all automakers, the cumulative year-to-date sales through May are up by 17.2% this year vs. last year (see chart).  May also marks the fifth straight month of double-digit sales gains compared to the same month in the previous year for the first time in 26 years (since 1984, data here). 

May Monster Employment Index Rises 14% vs. 2009

From today's Monster Employment Report for May 2010:

1. The Monster Employment Index rose one point in May to 134 as employers continue to step-up hiring activity.

2. Year-over-year growth rate climbed for the fourth consecutive month in May, and the Monster Employment Index is now 14% (16 points) above the May 2009 index of 118. 

3. Online demand rose in 12 of the 20 industries monitored by the Index and remained flat in four. Healthcare and social assistance industry saw the strongest rise in online job demand in May.

4. Manufacturing and transportation industries continue 3-month growth trend.

5. Online job demand rose in May in 15 of the 28 major metro markets monitored by the Monster Index, with Orlando registering the largest monthly gain.  Compared to May last year, all metro areas have experienced employment gains. 

Wednesday, June 02, 2010

Waiting for "Superman" Trailer

"Guggenheim's documentary focuses on aspiring students and their parents, mostly minorities, together struggling against the odds to get admitted into urban charter schools. Lacking the money for private schools, or move to the suburbs where the schools are better -- although not always good -- having only neighborhood high schools that are "drop out factories," these Americans have very few options. For many their only option is finding a decent charter school. But the odds for these young students to get selected in the lottery for a charter school is often worse than for students applying to Yale University.

And the film has villains. The clearly marked, cleared attacked villain that stands in the doorway to reforming our failing system of public education. The two major teacher unions! The two major teachers unions that together are the largest contributors to the Democratic Party; the Democratic Party that refuses to support legislation to require teachers to perform better and the Democratic Party that refuses to support legislation for the more innovative, less bureaucratic, effective charter schools.

What "Waiting for Superman" drives home is to improve our education system requires improving our teachers. Requires demanding our teachers get deep in the trenches, be allowed to be flexible and innovative, persist, and to be held accountable. This the teacher unions and the Democratic Party will not accept, even for the sake of our children."

From a movie review by Stewart Nusbaumer.

Life Expectancy in the U.S. vs. Real GDP per Capita

Does it seem like there might possibly be a statistically significant relationship between: a) life expectancy in the U.S. and b) annual real GDP per capita between 1929 and 2007?

ASA Staffing Index Growth Accelerates

"The 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."

The most recent ASA Staffing Index for the week of May 17 reached 90, the highest level since October 2008.  So far this year, the index of temporary help hiring has only declined in one week, and has stayed the same or improved in all other weeks.  Compared to the same week last year, the Staffing Index has improved 25% in the most recent week, which provides more evidence of ongoing increases in temporary and contract work. 

In  previous economic slowdowns, the temporary employment sector is among the first to recover, and signals future broad-based employment improvements throughout the economy in all sectors.  The acceleration of growth in the ASA Staffing Index should be a leading indicator of an ongoing sustained, V-shaped economic recovery through the rest of the year.   

The Fastest Growing Class of U.S. Millionaires: Government Workers Making 2X Private Workers

From "The Millionaire Cop Next Door" in Forbes:

"Who are America's fastest-growing class of millionaires? They are police officers, firefighters, teachers and federal bureaucrats who, unless things change drastically, will be paid something near their full salaries every year--until death--after retiring in their mid-50s. That is equivalent to a retirement sum worth millions of dollars.

If you further ask the question: How much salary would it take to live, save and build a $2 million stash over a 30-year career, the answer would be: somewhere close to $75,000 more than the nominal salary, if you include all the tax bites associated with earning, saving and investing money.

In other words, if a police officer, firefighter, teacher or federal bureaucrat is making $75,000 a year, she is effectively making twice that amount. Implied in her annual pension payout is that she diligently saved half of her annual salary--after taxes--in order to save, invest and build--again, after taxes--the $2 million pot.

So when you hear that government workers now make, on average, 30% more than private sector workers, you are not getting the full story. Government workers make more than twice as much as private sector workers, on average, when you include the net present value of their pensions."

HT: Steve Bartin

Port of Portland Shipping Up By 45% This Year

The Port of Portland recently released shipping statistics for April, which include the following highlights:

1. Total tonnage for April was 1,155,121 short tons, which was 55% above the shipping volume from April a year ago (see chart above).

2. Year-to-date tonnage this year is up by 45% compared to last year.

3. Grain tonnage this year during the first four months is 24.8% higher than 2009.

4. Auto shipments are up by 9.6% year-to-date compared to last year, and for the month of April up by 64% compared to last year.

5. Mineral bulk shipments are up by 122.5% year-to-date vs. 2009.  

6. On a three-month moving average basis, total tonnage was the highest in April since November 2008, 17 months ago.  

MP: Another V-shaped sign of an economic recovery in progress. 

Tuesday, June 01, 2010

The Rational Optimist: How Prosperity Evolves

In his new book "The Rational Optimist: How Prosperity Evolves," zoologist and science writer Matt Ridley systematically builds a case through copious data and countless studies that “the vast majority of people are much better fed, much better sheltered, much better entertained, much better protected against disease and much more likely to live to old age than their ancestors have ever been. The availability of almost everything a person could want or need has been going rapidly upwards for 200 years and erratically upwards for 10,000 years before that: years of lifespan, mouthfuls of clean water, lungfuls of clean air, hours of privacy, means of traveling faster than you can run, ways of communicating farther than you can shout,” and with more access to “calories, watts, lumen-hours, square feet, gigabytes, megahertz, light-years, nanometers, bushels per acre, miles per gallon, food miles, air miles, and of course dollars than any that went before.”

Book review from the Scientific American.

Teenagers: Silent Victims of Minimum Wage Laws

The New York Times has a long article today in its Business Section about the dismal job market for teenagers this summer, here are some excerpts from "Job Outlook for Teenagers Worsens":

"This year is shaping up to be even worse than last for the millions of high school and college students looking for summer jobs. With so many people competing for so few jobs, unemployed youth “are the silent victims of the economy,” said Adele McKeon, a career specialist with the Boston Private Industry Council who counsels students on matters like workplace etiquette, professionalism and résumé writing.

Getting the first job “is an accomplishment, and it’s independence, Ms. McKeon said. If you don’t have it, where are you going to learn that stuff?”

The unemployment rate for the 16-to-24 age group reached a record 19.6 percent in April, double the national average. For those job seekers, said Heidi Shierholz, an economist at the Economic Policy Institute, “This is the worst year, definitely since the early ’80s recession and very likely since the Great Depression.”

MP: Not once in the 1,300 word article does the writer discuss the devastating effects on teenage employment of the 41% increase in the minimum wage from $5.15 per hour in early 2007 to $7.25 by the summer of 2009.  Thanks to Jeff at the Added-Value Blog for pointing this out.  Here's my re-write:

This year is shaping up to be even worse than last for the millions of high school and college students looking for summer jobs. With so many people competing for so few jobs, unemployed youth “are the silent victims of the economy minimum wage legislation” said Mark Perry, professor of economics at the Flint campus of the University of Michigan.

Getting that first job “is an accomplishment, and it’s independence. If you don’t have it, where are you going to learn that stuff?” said a career specialist.  According to Perry, "With a 41% increase in the minimum wage between 2007 and 2009 from $5.15 to $7.25 per hour, the chances of getting that first job, along with valuable experience, on-the-job training and independence will now be more difficult than ever before. 

Especially during an economic downturn, unskilled workers have a potentially powerful weapon and advantage that can give them a competitive edge over skilled workers in a weak labor market - low wages. But between 2007 and 2009, politicians took away the competitive advantage of unskilled workers at the time they needed it most, by boosting the minimum wage for unskilled workers by 41%, and essentially pricing them right out of the worst economy and labor market since the early 1980s."

The unemployment rate for the 16-to-19 age group reached 25.4 percent in April, 15.5 points higher than the national average of 9.9% (see chart above). For those job seekers, said Heidi Shierholz, an economist at the Economic Policy Institute, “This is the worst year, definitely since the early ’80s recession and very likely since the Great Depression, in large part due to the increase in the minimum wage increases in 2007 (13.6%), 2008 (12%), and 2009 (10.7%)." 

As researchers at Northeastern University, who issued a report in April on youth unemployment, put it, “The summer job outlook does not appear to be very bright in the absence of a massive new summer jobs intervention, or a repeal of the minimum wage legislation.

The poor numbers this year are not solely a symptom of the continued weak economy, but have been made far worse by the recent hikes in the minimum wage. For generations, government data shows, at least half of all teenagers were in the labor force in June, July and August. Starting this decade, though, the number of employed teenagers began to drop, and by 2009, less than a third of teenagers had jobs. This year, the number could fall below 30 percent, and teenagers have the minimum wage to thank for the worst job prospects in a generation for their age group.

The forecast for this summer is so dire that high school students took to the streets this year in Washington, Boston and New York to push lawmakers to come up with money for summer youth jobs programs as Congress did last year, allocating $1.2 billion for a program for low-income youths. repeal the minimum wage law that students refer to as the "teenage job killer."

Update from Don Boudreaux: "Suppose Uncle Sam orders you (The New York Times) to raise by 41 percent the price you charge for subscriptions to your newspaper. Would you be surprised to find a subsequent fall in the number of subscribers? If you assigned a reporter to investigate the reasons for this decline in subscriptions, would you be impressed if that reporter files a story offering several possible explanations for the fall in subscriptions without, however, once mentioning the mandated 41 percent price hike?

Petroleum Inputs to the Sea: Natural Seeps is #1

There is an estimated 256,000 tons of petroleum entering North American waters every year, and 1,268,000 tons entering the marine environment worldwide.  Here are the sources of the "Petroleum Inputs to the Sea," according to "Oil in the Sea III: Inputs, Fates, and Effects":

1. Natural Seeps.  Natural seepage of crude oil from geologic formations below the seafloor to the marine environment off North America is estimated to exceed 160,000 tons (47,000,000 gallons), and 600,000 tons (180,000,000 gallons) globally, each year. Natural processes are therefore, responsible for 62.5 percent of the petroleum entering North American waters (see chart above), and over 45 percent of the petroleum entering the marine environment worldwide.

2. Petroleum Extraction. Activities associated with oil and gas exploration or production introduce, on average, an estimated 3,000 tons (880,000 gallons) of petroleum to North American waters, and 38,000 tons (11,000,000 gallons) worldwide, each year. Releases due to these activities, therefore, make up roughly 1.2 percent of the total petroleum input to North American waters (see chart) and 3 percent of the total worldwide.

3. Petroleum Transportation. The transportation (including refining and distribution activities) of crude oil or refined products results in the release, on average, of an estimated 9,100 tons (2,700,000 gallons) of petroleum to North American waters, and 150,000 tons (44,000,000 gallons) worldwide, each year. Releases due to the transportation of petroleum, therefore, make up roughly 3.5 percent of the total petroleum input to North American waters (see chart) and about 12 percent worldwide.

4. Petroleum Consumption.  Releases that occur during the consumption of petroleum, whether by individual car and boat owners, non-tank vessels, or runoff from increasingly paved urban areas, contribute the vast majority of petroleum introduced to the environment through human activity. On average, an estimated 84,000 tons (25,000,000 gallons) of petroleum are input to North American waters, and 480,000 tons (140,000,000 gallons) are input worldwide, each year from these diffuse sources.  Releases from petroleum consumption make up roughly 33% of the total petroleum entering North American waters (see chart) and 38% of the petroleum entering the marine environment worldwide. 

MP: By far, the largest source of petroleum in the world's oceans is natural seepage (62.5% for North America), and the smallest source is from "petroleum extraction" (1.2% for North America).  Although the percentage for "petroleum extraction" will be much higher this year due to the Deepwater Horizon oil spill, it's probably good to put this all in perspective, and consider that the transportation and consumption of petroleum contribute much higher amounts of environmental damage in a typical year than oil drilling, by factors of three times greater for oil transportation and 27 times greater for oil consumption.   

Thomas Sowell on "The Real Public Service"

"It was Thomas Edison who brought us electricity, not the Sierra Club. It was the Wright brothers who got us off the ground, not the Federal Aviation Administration. It was Henry Ford who ended the isolation of millions of Americans by making the automobile affordable, not Ralph Nader.

Those who have helped the poor the most have not been those who have gone around loudly expressing "compassion" for the poor, but those who found ways to make industry more productive and distribution more efficient, so that the poor of today can afford things that the affluent of yesterday could only dream about."

~Thomas Sowell

Markets in Everything: Gourmet Food Trucks

CHICAGO TRIBUNE -- "In the last couple of years, a gourmet food truck craze has swept cities from Los Angeles and Austin, Texas, to New York and Minneapolis. High-end chefs and talented amateurs have hopped in mobile kitchens to serve kimchi tacos, grilled cheese sandwiches and Latin-Asian chow to foodies who follow them on Twitter and line up in convivial droves.

But while Chicago is home to some of the nation's most innovative restaurants, its food truck scene has largely been left in the dust. Only "pre-prepared and packaged foods" — like the kind sold from silver lunch wagons — can be offered on the street, not the freshly made delicacies fueling the trend.

Determined to change that, Chicago-area chef  Matt Maroni has drafted a city ordinance that Ald. Scott Waguespack (32nd) plans to introduce in the City Council this month."

HT: Matt Bixler

ISM Factory Index Signals Continued Expansion

June 1 (Bloomberg) -- "Manufacturing in the U.S. expanded in May for a 10th month as factories continued to help propel the economic recovery. The Institute for Supply Management’s manufacturing gauge fell to 59.7, higher than forecast, from 60.4 in April, which was the highest level in almost six years. Readings greater than 50 point to expansion(see chart above)."

MP: The last time of ten consecutive monthly readings above 50 (indicating expansion) was the ten month period immediately preceding the last recession from February to November 2007.  The ISM index has been above a level of 55 in each month this year (January to May), which is the first time since 2004 of five consecutive months that the ISM Index has been above 55.  

Markets in Everything: Internet Dating Outsourcing

Washington Post -- "Hartshorn is a hired gun, ghostwriting correspondence on behalf of single men unwilling, too busy or too inept to do it themselves. His online dating is done on commission for Virtual Dating Assistants, one of the first full-scale Internet-dating outsourcing companies. For $600, Virtual Dating Assistants guarantees clients two dates a month; the "executive service" package promises five dates a month for $1,200."

Monday, May 31, 2010

Florida Home Sales Increase +27% in April

"Sales of existing homes in Florida rose 27% in April, which means that sales activity has increased in the year-to-year comparison for 20 months, according to the latest housing data released by Florida Realtors. Another positive sign: Last month's statewide existing-home median price of $140,100 was 1 percent higher than the statewide median price in April 2009.

Existing home sales rose 27% last month with a total of 16,781 homes sold statewide compared to 13,244 homes sold in April 2009 (see chart). Statewide existing home sales last month increased nearly 3 percent over statewide sales activity in March. Meanwhile, April's statewide existing-home median price was 2.3% higher than March's statewide existing-home median price of $137,000. It marks the second month in a row that the statewide existing-home median price has increased over the previous month's median."

MP: Assuming the median home price in Florida is not too different from the mean home price, the total housing sales volume in the state increased from about $1.84 billion in April 2009 to about $2.35 billion in April 2010, for almost a 28% increase. If we measured housing market activity like we measured vehicle sales - in unit sales, without regard to price - we would conclude that the Florida housing market is booming, with 20 consecutive monthly increases compared to the same month in the previous year, and a whopping 27% increase from April of last year. And if we measured housing activity like we measure retail sales (total sales volume), we would also conclude that the Florida housing market is doing quite well, with something like a 28% increase in sales volume (assuming the median home price is an accurate estimate of the mean home price) in April compared to last year.

April Trucking Gains 9.4% vs. 2009, Largest Monthly Increase Since January 2005, 5th Consecutive Gain

"The American Trucking Associations’ seasonally adjusted (SA) Truck Tonnage Index increased for the sixth time in the last seven months, gaining another 0.9% in April. This followed a 0.4% increase in March. The latest improvement put the SA index at 110.2, which is the highest level since September 2008 (see chart above). 

Compared with April 2009, SA tonnage surged 9.4 percent, which was the fifth consecutive year-over-year gain and the largest increase since January 2005. Year-to-date, tonnage is up 6% compared with the same period in 2009."

Restaurant Performance Index Above 100 for Two Consecutive Months, First Time Since Late 2007

"The outlook for the restaurant industry remained positive in April, as the National Restaurant Association's comprehensive index of restaurant activity was essentially unchanged from its March level. 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 100.4 in April, down slightly from its March level of 100.5. More importantly, the RPI stood above 100 for the second consecutive month, which signifies expansion in the index of key industry indicators."

MP: The Restaurant Performance in April (100.4), like in March (100.5), reached the highest level since the fall of 2007, and stayed above 100 for two consecutive months for the first time since the recession started in December 2007. 

Sunday, May 30, 2010

Good Question, Captain

"Why is that when BP screws up we make sure they pay every dime in damages, but if a bank (MP: or automobile company like GM, or insurance company like AIG, or GSE like Fannie and Freddie) screws up, we bail them out with taxpayer money?

HT: Captain Capitalism

Ultra-Deepwater Drilling and Normal Accidents

From the EIA:

"Gulf of Mexico (GOM) oil production began from shallow water fields (water depth of under 1,000 feet) but shallow water production began to fall in 1998. Steadily increasing volumes from deepwater fields (water depths between 1,000 and 4,999 feet) offset these declines until 2004, after which deepwater production also began to decline (see chart above).

But, ultra-deepwater production (water depths more than 5,000 feet) has risen dramatically since 2004 (and more than tripled since 2005), stemming the overall decline in GOM production. A trio of high-profile ultra-deepwater discoveries - Atlantis, Thunder Horse, and Great White (part of the Perdido development) - has recently started producing. Several more are in various stages of development."

HT: Paul Kedrosky, who argues that "part of what we're seeing here is the inevitable "normal accidents" from changing technology as we transition from one extraction depth regime to another."

Markets in Everything: Chocolate Bonds

A U.K. chocolate company is offering high-interest bonds where coupon payments are paid in chocolate instead of cash.

Should We End the 30-Year Fixed-Rate Mortgage?

The United States is one of the only countries in the world with 30-year fixed rates for mortgages, and Arnold Kling suggests that this is "an artifact of government intervention, and that without it we would have a simpler, safer mortgage finance system."  For example, Canadian mortgages carry a fixed interest rate for a maximum of five years, and rates are then re-negotiated for the next five years, similar to a five-year adjustable rate.  That type of five-year mortgage is much more typical around the world than the U.S. system of fixed-rates for 30 years.   

The reason the 30-year fixed-rate mortgage has to be a creation of government intervention, and not the market, is that it is a one-sided loan arrangement that bestows huge benefits on the borrower, but with almost no compensating benefits for the lender/bank/thrift, i.e. it's "pro-borrower and anti-lender."  

As Arnold points out, there is an extremely valuable pre-payment option on a 30-year fixed-rate mortgage that favors the borrower, who can re-finance the mortgage whenever it is to his/her advantage over the 30 years, i.e. when rates fall enough to justify the refinancing costs.  Lenders have no such option to renegotiate the rate when it's to their advantage - when interest rates rise.  Or to be more accurate, the pre-payment option favors the borrower when it is under-priced, which is the case in the U.S., likely as a result of government influence.   

Looking again to Canada, refinancing mortgages is allowed, but there are very stiff prepayment penalties equivalent to about three months of mortgage interest (about $1,500 for every $100,000 mortgage amount), which discourages the kind of refinancing that frequently takes place in the United States and contributed to our real estate bubble and financial crisis.  In other words, the pre-payment option under the Canadian system is probably much closer to a market-driven price than in the U.S.

The chart above shows the potential danger to banks of 30-year fixed-rate mortgages, and illustrates how they contributed to the S&L crisis.  Because S&'L's were "borrowing short and lending long," or financing 30-year fixed-rate mortgages with short-term deposits at interest rates approximated by the 1-year T-bill rate, S&Ls were "upside down" by the early 1980s. They were paying more on short-term deposits (e.g. 10-15%) than they were earning on their 30-year fixed-rate loans (e.g. 4-8%). 

Simply put, 30-year fixed-rate mortgages were a major factor in 3,000 bank failures during the S&L crisis, and this helps support Arnold's position that they have to be an artifact of government intervention because banks wouldn't willingly expose themselves to such a huge level of interest rate risk with 30-year fixed-rate mortgages with under-priced pre-payment options.  All it took was a period of rising interest rates in the 1970s and 1980s to force thousands of thrifts into insolvency, largely because their assets were so heavily concentrated in 30-year fixed-rate mortgages. 

Q1: Now that 30-year mortgage rates are below 5% and close to historical low levels, are we in danger of setting up another S&L-type crisis sometime over the next several decades?  It wouldn't take much of an increase in inflation and short-term interest rates before many banks/thrifts could see their interest margins squeezed, and short-term rates could conceivably even rise above 5% sometime in the next 30 years, which could put the banks "upside down" again and lead to failures. 

Q2: Shouldn't financial reform include putting an end to the pro-borrower, anti-lender 30-year fixed-rates mortgages in the U.S.?