Monday, July 12, 2010

Bolt Won't Return to High-Tax UK Until 2012

UK Telegraph -- "Organizers of next month's Aviva London Grand Prix at Crystal Palace had hoped to stage the first 100 meters head-to-head of the season between Bolt, Tyson Gay and Asafa Powell but the triple Olympic champion is set to shun the meeting because it would expose him to a huge tax bill. Unless the tax rules are relaxed, athletics administrators fear British fans will be denied the chance to see the sport's biggest star in action again until he returns to the capital in two years' time to defend his Olympic titles.

Since April, foreign sports stars competing in Britain are liable for a top rate of income tax of 50 percent but, controversially, the tax is charged not just on the money they earn in Britain but on a proportion of their worldwide sponsorship income."

MP: See previous CD posts on how high taxes drive highly-paid professional athletes away here, here, and here, illustrating the basic economic principle that "if you tax something, you get less of it."

HT: Kyle Stingily

Dallas Morning News Editorial Writer Coined the Term "Right to Work" on Labor Day in 1941

Dallas Morning News editorial writer William Ruggles (pictured above) "thought every American had a right to work. He used those words in an editorial on September 1, 1941 (Labor Day) asking for a 22nd amendment to the U.S. Constitutional guaranteeing the right to work with or without union membership. In so doing, he coined a phrase and sparked a movement that would change the labor landscape in America," according to a recent story in the Dallas Morning News as part of its 125th anniversary celebration.   Here are some excerpts from the article:

“The answer seemed to me to be an amendment to the federal Constitution that would be so clear and unequivocal that no jurist could argue against its meaning,” Ruggles said later. Texas passed its right-to-work law in 1947.

Although that constitutional guarantee never materialized, 22 states enacted legislation patterned after the editorial. These laws prohibit agreements between trade unions and employers that make membership and payment of union dues or fees a requirement of employment even if the company is operating under union-negotiated bargaining agreements. 

Love them or hate them, economists, historians and lawyers agree that right-to-work laws were the leading factor in the Sun Belt’s success. “Economic growth in places like Georgia and Texas was driven by the combination of the right to work and the cost of labor,” says Al Niemi, dean of the Cox School of Business at Southern Methodist University. “Since the right to work dictated the cost of labor, right to work was the single most important driver.”

HT: Jeff Perry

Dodd-Frank Cave to Hollywood: No Movie Futures

LA Times (June 14, 2010) -- "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.

The idea of betting on future box-office receipts has faced vociferous opposition from the movie industry, led by the Motion Picture Assn. of America, which has said that the contracts would be vulnerable to manipulation and could even hurt how movies perform in theaters.

The decision Monday could still be counteracted by legislation that seeks to ban any trading in box-office futures. The Senate has approved such legislation, but it would need to be approved by the House of Representatives to make it into the final financial reform bill."

The Wrap (July 1, 2010) -- "Hollywood Stock Exchange ( laid off the majority of its staff on Thursday, TheWrap has learned.  The move comes as HSX's parent company Cantor Fitzgerald's long-gestating plans to sell shares of box-office earnings hit a legislative roadblock last week.

Bowing to pressure from big studios, the House of Representatives and Senate have included a ban on movie box-office futures trading in their proposed financial reform legislation. On Monday, shortly after getting federal approval for Cantor's trading plan, exchange president Richard Jaycobs admitted that congressional action will prevent the company from moving forward."

Wheat Subsidies: A Scam for the Ages

A great example from today's The Gartman Letter about how government agricultural subsidies generate significant and costly economic distortions and inefficiencies: 

"One of the axioms of economics is the simple notion that if you subsidize the production of anything you are going to get more of it… and usually more of it than you need. Our favorite example of that was back in the 1970s and 1980s when the US government subsidized durum wheat production in the Dakotas primarily. We got more durum wheat than we could use, so we had to subsidize the export of that wheat to Italy primarily.

Italian pasta makers gladly took the subsidized overproduction at newly subsidized prices that were below the world price of that wheat, and produced wonderful pastas that they exported to the US. The US pasta producers protested and got the government to put a tariff on the imported pasta! In other words, American tax payers “paid” to have too much wheat grown; “paid” again to have that excess wheat exported and “paid” again to buy the pasta they cherished from the Italian pasta producers… and all along the way there were more and more government employees needed to supervise each level of subsidies and tariffs. It was a wonder to behold! It was a scam for the ages."

Dennis then uses this example to ask "how anyone could be surprised to find that new home sales have fallen off the edge of a precipice in recent months following the “incentives” for buying new homes put into effect late last year and expiring several months ago this year?"

Update: Wheat farmers continue to receive very generous subsidies, more than $30 billion has been paid out between 1995 and 2009 to more than a million farmers, see data here and here.  More than $2 billion has been paid out in each of the last two years (2008 and 2009). 

Sunday, July 11, 2010

BDI Weakens; Other Shipping Measures Are Strong

I have had some repeated requests from some loyal CD readers to get an update on the Baltic Dry Index (you can always go here on your own any time you need your "BDI fix"), which has been in decline for the last month after reaching a YTD high in late May (see chart above).  Dennis Gartman addressed this recent decline in the BDI in his newsletter on July 8, where he quoted Julian Jessop, Chief Economist of Capital Economics:

"The BDI is a composite measure of the cost of hiring a ship to transport dry bulk commodities such as grains, coal and metal ores. It is therefore understandable that the near -50% fall in the index since late May is attracting plenty of attention. However, there are two reasons to be wary of making big calls on commodities (or anything else) on the basis of the BDI. For a start, fluctuations in the index could be driven by changes in the supply of shipping as well as in the underlying demand for commodities transported by sea. For example, a fall in the BDI could reflect an increase in the number of ships available to carry dry commodities (either new-builds or conversions from other uses, such as tankers. Similarly, the BDI might be distorted by temporary port closures, changes in the cost of fuel and insurance, and many other factors."

Dennis Gartman then added, "We shall accept it for perhaps half of the decline. We might even willingly accept it for two thirds of the decline, but there is more at work here than a mere increase in supply. Demand too must be weak, and it is this weakness that has our attention."

Other shipping statistics that measure physical volumes (TEUs) rather than shipping rates have been showing positive increases in recent months, see CD posts here for the port of Los Angeles and here for the port of Seattle. Also Scott Grannis has reported recently on the ongoing strength in the HARPEX Shipping Index.  As Dennis Gartman suggests, we should definitely pay attention to the BDI if it continues to weaken, but we should also pay attention to the other indicators of shipping activity, many of which continue to show signs of strength, including the HARPEX, rail traffic, LA Port shipping volume, Seattle Port shipping, and U.S. trucking tonnage.  

The Most Prolific Consumer Device on the Planet

BBC -- "More than a billion mobile phone connections have been added to the global tally in just 18 months, and there are now more than five billion connections worldwide - which is three times as many phones as personal computers.

In the UK in 1987, when the first mobile companies launched, an industry insider predicted a maximum of 10,000 phones.  Now 30 million phones are sold every year in the UK."

Saturday, July 10, 2010

Recession Frequency Was Much Higher Pre-1990

There have been a lot of comparisons of the most recent recession to the Great Depression and to previous post-WWII recessions, for example see the Minneapolis Federal Reserve's website on The Recession and Recovery in Perspective.  While most comparisons have been between the length and severity of the 2007-2009 recession to previous individual recessions, what has received considerably less attention is the frequency of recessions over various periods of time.  That is, it's not only the length and severity of individual recessions that is important, but it's also important how frequently recessions occur over periods like 8, 10 and 12 year periods. 

The top chart above shows the frequency and duration of the 12 recessions since WWII, according to the NBER.  Using "inter-ocular least squares analysis" (i.e. "eyeballing" the data), it seems pretty clear that recessions were much more frequent in the: a) mid-1940s to early 1960s period, and b) early 1970s to early 1980s period, than in the post-1982 period.  Maybe one of the reasons the most recent recession seems particularly severe is that we "got spoiled" in the 25-year period between 1983 and 2007, when the economy was in recession only 6.3% of the time, compared to the previous 25-year period when the economy was in recession 23% of the time from 1958 to 1982. 

The next three charts show the percentage of months in recession over: a) rolling 8-year periods, b) rolling 10-year periods, and c) rolling 12-year periods.  Over the most recent 8-year period (July 2002 to June 2010), the economy has been in recession 20% of the time, down from 25% a year ago.  In contrast, the economy was in recession 20% or higher during 62% of the 8-years rolling periods between 1953 and 1989.  Similar patterns emerge for the 10-year and 12-year rolling periods: the economy was in recession much more frequently between the 1950s and 1990 compared to the post-1990 period, and we definitely got "spoiled" in the 1990s and 2000s, with long periods of time during which the economy was expanding, not contracting. 

For example, over 12-year periods, the economy was in recession for only 6.25% of the time for more than half of the 1990s and  half of the 2000s, representing the longest periods of ongoing economic expansion since WWII. So not only has the most recent recession been less severe than some of the previous recessions by certain measures like the maximum unemployment rate, but the recession frequency during the most recent 8-, 10- and 12-year periods has been much lower than the pre-1990 period.  

Bottom Line: It could be a lot worse, and in fact when it comes to the frequency of recessions, it was a lot worse in much of the 1950s, 1960s, 1970s and 1980s than recently in the 1990s and 2000s.

U-Haul Index: LeBron's Not the Only One Leaving

One-way rental rates for a 26-foot U-Haul truck on August 4, 2010:

Miami, FL to Cleveland, OH: $1,000
Cleveland, OH to Miami, FL: $1,457
Premium to leave Ohio: 45.7%

Orlando, FL to Cleveland, OH: $834
Cleveland, OH to Orlando, FL: $1,301
Premium to leave Ohio: 56%

Tampa, FL to Cleveland, OH: $917
Cleveland, OH to Tampa, FL: $,1379
Premium to leave Ohio: 50.4%

Assuming that one-way U-Haul rates are based on relative demand, there are lot more people and trucks leaving Ohio for Florida than vice-versa, resulting in large premiums to rent trucks going to Florida and large discounts for trucks going to Ohio. 

Section 342 of the Dodd-Frank Bill Will Impose Gender and Racial Quotas on the Financial Industry; Even Though the House Committee is 82% Male, and the Senate Committe is 96% Male, 100% White

Here's something that has great potential to ruin your day, from Diana Furchtgott-Roth:

"Section 342 of the Dodd-Frank financial regulation bill declares that race and gender employment ratios, if not quotas, must be observed by private financial institutions that do business with the government. In a major power grab, the new law inserts race and gender quotas into America's financial industry.

In addition to this bill's well-publicized plans to establish over a dozen new financial regulatory offices, Section 342 sets up at least 20 Offices of Minority and Women Inclusion. This has had no coverage by the news media and has large implications.

The Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the 12 Federal Reserve regional banks, the Board of Governors of the Fed, the National Credit Union Administration, the Comptroller of the Currency, the Securities and Exchange Commission, the new Consumer Financial Protection Bureau...all would get their own Office of Minority and Women Inclusion.

Each office would have its own director and staff to develop policies promoting equal employment opportunities and racial, ethnic, and gender diversity of not just the agency's workforce, but also the workforces of its contractors and sub-contractors.

What would be the mission of this new corps of Federal monitors? The Dodd-Frank bill sets it forth succinctly and simply - all too simply. The mission, it says, is to assure "to the maximum extent possible the fair inclusion" of women and minorities, individually and through businesses they own, in the activities of the agencies, including contracting.

Lest there be any narrow interpretation of Congress's intent, either by agencies or eventually by the courts, the bill specifies that the "fair" employment test shall apply to "financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants and providers of legal services." That last would appear to rope in law firms working for financial entities.

This latest attempt by Congress to dictate what "fair" employment means is likely to encourage administrators and managers, in government and in the private sector, to hire women and minorities for the sake of appearances, even if some new hires are less qualified than other applicants. The result is likely to be redundant hiring and a wasteful expansion of payroll overhead.

With the new financial regulation law, the federal government is moving from outlawing discrimination to setting up a system of quotas. Ultimately, the only way that financial firms doing business with the government would be able to comply with the law is by showing that a certain percentage of their workforce is female or minority.

The new Offices of Women and Minorities represent a major change in employment law by imposing gender and racial quotas on the financial industry. The issue deserves careful debate - rather than a few pages slipped into the financial regulation bill."

MP: As Thomas Sowell reminds us: If there is ever a contest to pick which word has done the most damage to people's thinking, and to actions to carry out that thinking, my nomination would be the word "fair."

Update: Gender composition of The House Committee on Financial Services, chaired by Barney Frank: 

Male: 81.7%
Female: 18.3% (only 13 female members out of 71)

Gender composition of the Senate Committee on Banking, Housing and Urban Affairs:

Male: 96% (all white)
Female: 4% (only one white female member out of 23)
Minorities: 0%

Friday, July 09, 2010

Markets in Everything: Dollars for Domains

The chart above shows the top ten highest reported domain sales in 2010, see the full list of the top 100 here

Here's a recent CNBC segment about the market for domain names:

Canada Recovers Almost All Jobs Lost in Recession

Statistics Canada -- "Employment rose by 93,000 in June, pushing the unemployment rate down 0.2 percentage points to 7.9%. This is the first time the rate has been below the 8% mark since January 2009.  Employment has been on an upward trend since July 2009, increasing by 403,000 (+2.4%). These gains offset nearly all the employment losses observed during the labour market downturn which began in the fall of 2008. The June unemployment rate, however, remained well above the October 2008 rate of 6.2%, due to a large increase in the number of people in the labour force over this period."

Chart of the Day: Real Gold Prices

Adjusted for inflation, the price of gold today is 41.5% below the January 1980 peak of more than $2,000 per ounce (in 2010 dollars). 

Chart of the Day: Net Interest Margin

The net interest margin for all U.S. banks of 3.82% in the first quarter of 2009 is the highest since the fourth quarter of 2002. 

Warren Buffett's Favorite Economic Indicator: Rail

In this CNBC interview, Warren Buffett was asked to identify the single most important economic statistic he would choose if he was stranded on a desert island for a month and could only get one set of economic numbers. Buffett reported that his favorite “desert island indicator” would be freight car loadings. 

The likely reason that Buffett is so fond of rail traffic as his “desert island indicator” is that it measures the amount of raw materials, inputs, and supplies moving around the country every week, and this should accurately predict the future direction of the overall economy. After all, the inputs transported by rail eventually get processed into inventory, final output, and goods for sale.

In that case, Buffett must be pretty pleased with yesterday's American Railroad Association’s (AAR’s) weekly report, which shows that rail traffic in the United States is booming.

Read more here at The Enterprise Blog.

OECD Leading Index Increases for 15th Month

Data released today from the OECD shows that its Composite Leading Indicator Index for 28 member OECD countries reached a 31-year high in May (see chart above, data here).  The OECD Composite Leading Indicators increased slightly in May to 103.7 from 103.6 in April, and reached the highest level in the index's history since March 1979.  The OECD Leading Index has now increased for 15 consecutive months, although the increase in May was the smallest monthly increase since the positive trend started in March of 2009. 

On an individual country basis, the May leading indexes were mixed, with about half of the countries registering slight decreases and the other half showing increases.  The United States leading index increased in May and reached the highest level since August 2007, and the major country groupings including the G7, NAFTA, and OECD Europe all increased in May.  Non-OECD countries were also mixed, with the indexes for Indonesia, Russia and South Africa increasing in May, and Brazil, China and India decreasing slightly. 

According to the OECD report, the "OECD composite leading indicators for May 2010 continue to point to an expansion but with stronger signals of a slowing pace of growth than in last month’s assessment."

Thursday, July 08, 2010

Most of the Gender Pay Gap Disappears After Controlling for Marriage and Having Children

The Department of Labor recently released its annual study Highlights of Women’s Earnings in 2009 and opens the report with the following statement:

"In 2009, women who were full-time wage and salary workers had median weekly earnings of $657, or about 80 percent of the $819 median for their male counterparts. In 1979, the first year for which comparable earnings data are available, women earned about 62 percent as much as men. After a gradual rise in the 1980s and 1990s, the women's-to-men's earnings ratio peaked at 81 percent in 2005 and 2006."

MP: Doesn't the BLS' use of the term "male counterparts" (Webster definition: "one remarkably similar to another") imply an "apples to apples" comparison between male and females workers, as if all relevant explanatory factors have been controlled for, i.e. the ceteris paribus condition has been imposed?

In the chart above, BLS data show that marriage and having children affect male and female earnings differently, so that men and women workers can't really be considered "counterparts" in a statistical sense, and any unadjusted comparisons would be comparing apples to oranges.  For example, single women earn about 95% of what men earn, but married women earn 75.6% of what married men earn (from Table 1), and married women with children between the ages of 6-17 earn 70.25% of their male "counterparts" (Table 8).  Also from Table 8, for the marital status that includes "never married, divorced, separated and widowed," and with "no children under 18 years old," women in that group make 96.3% of their "male counterparts." 

According to the BLS report, marriage and motherhood can explain a large portion of the gender pay gap.  

LeBronomics: $12m in NY Taxes vs. $0 in Florida?

Business and Media Institute - "While sports reporters have sought agents and teammates for the inside scoop on where NBA superstar free agent LeBron James will sign, there’s another person who may know The King’s next move: his accountant."

Based on a $96 million, five-year contract, here's an estimate of what LeBron James would pay in state income taxes:

New York: $12.34 million

New Jersey: $10.32 million

Ohio: $5.69 million

Florida: $0.00

Update: It's actually a little more complicated, and here's a more thorough tax analysis by Aaron Merchak of The Tax Foundation, concluding that "Even though LeBron's salary would be $10,000 more per game if he stayed in Cleveland, he would be paying $12,500 more in taxes. The rest of the road games are pretty much a wash between the two cities. When playing in California, New York and other destinations, players from Ohio and Florida pay the same, the tax rate of the state they're visiting."

Weekly Rail Traffic Tops Same Weeks in 2008 and 2009; Highest Rail Traffic for Week 42 Since 2007

"The Association of American Railroads today reported that rail traffic for the week ending July 3, 2010 topped comparison weeks from both 2008 and 2009. Carloads were up 18.8 percent, at 286,777 cars, from the comparable week in 2009 (see chart above) and up 0.4 percent from the same week in 2008.

Intermodal traffic totaled 231,286 trailers and containers, the highest since week 42 of 2008. Volume was up 36.6 percent from a year ago (see chart above) and 19.1 percent from 2008. Container volume of 197,134 was the sixth highest week ever and the highest since week 39 of 2007. Compared with the same week in 2009, container volume gained 39.8 percent and trailer volume rose 20.9 percent. Compared with the same week in 2008, container volume increased 30.8 percent and trailer volume fell 21.3 percent."

MP: As the chart above illustrates, rail traffic has been improving all year, with positive gains in weekly traffic compared to 2009 in almost every week of 2010.  However, this week marks the first time that both carload volume and intermodal traffic were above the comparable weeks in both 2008 and 2009, bringing traffic for Week 42 to the highest levels since 2007.

IMF Forecasts Continuing Global Recovery in 2010

The IMF has updated its forecast for global GDP growth in 2010 and 2011 (see chart above, click to enlarge).  Compared to its April forecast, the IMF has made upward revisions to almost all of its forecasts for real output growth in 2010 (the only exceptions being downward revisions of -.01% for U.K. and France): world GDP growth for 2010 has been revised upward to 4.6%, which will be the highest annual growth rate since 2007, and far above the 3.2% average growth since 1980.  The upward revision of .40% for world GDP translates into an additional $220 billion of output that will be produced this year compared to the IMF's April forecast.   

China (10.5%, revised upward by .5%), India (9.4%, revised up by .6%) and Brazil (7.1%, revised up by 1.6%) are expected to lead the world in real output growth this year.  Real GDP growth in the U.S. was revised up by .20% to 3.3% for 2010, and revised up by .30% to 2.9% for 2011.

Basic Econ: To Stimulate One Group, You HAVE to De-Stimulate Some Other Group, Net Effect = 0

Art Laffer in today's WSJ "Unemployment Benefits Aren't Stimulus":

"When it comes to higher unemployment benefits or any other stimulus spending, the resources given to the unemployed have to be taken from someone else. There isn't a "tooth fairy.” The government doesn't create resources, it redistributes them. For everyone who is given something there is someone who has that something taken away.

While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.

To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to the unemployed, then people who otherwise would have had those 10 apples now won't. The stimulus of 10 apples for the unemployed is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken.

Given the massive inefficiencies the government creates in securing resources from the private sector, there may also be a large negative income effect over wide ranges of stimulus spending. This is the proverbial "toll for the troll." These massive inefficiencies could lead to lower output.

To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may "buy" more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will "buy" less. There is no stimulus for the economy.

But it doesn't stop there. While the income effects sum to zero, the substitution effects aggregate. The person from whom the unemployment funds are taken will find work less rewarding and will work less. The person who is given the unemployment benefits will also find work relatively less rewarding and will therefore work less. Both people in this two-person economy will be incentivized to work less. There will be less work and more unemployment.

Not only will increased unemployment benefits not stimulate the economy, they will at the same time lower the incentives for people to work by reducing the amount people are paid for working and increasing the amount people are paid for not working. It's pretty basic economics."

Wednesday, July 07, 2010

White Castle Has Offered Health Insurance To Its Workers Since 1924, But Obamacare May End That

White Castle has been offering health insurance to its workers in 1924, but Obamacare "will make it hard for the company to maintain its 421 restaurants, let alone create new jobs," says company spokesman Jamie Richardson in this Cleveland Plain Dealer article.

"The Columbus-based family owned restaurant chain - known for serving small square hamburgers called "sliders" – says a single provision in the bill will eat up roughly 55 percent of its yearly net income after 2014. Starting that year, the bill levies a $3,000-per-employee penalty on companies whose workers pay more than 9.5 percent of household income in premiums for company-provided insurance.  White Castle, which currently provides insurance to all of its full-time workers and picks up 70 to 89 percent of their premium costs, believes it will likely end up paying those penalties.

House Republican Leader John Boehner of Ohio, a vocal foe of the changes, says White Castle's analysis shows how the law's "job-crushing" impact will be most severe in lower-income areas, where jobs like those at White Castle are most needed. "The irony is that in the name of expanding health care coverage, the administration is making it harder than ever for unskilled workers to get started in the workforce," Boehner said in a missive on White Castle's plight.

White Castle is also examining whether it would make financial sense for the company to eliminate health insurance coverage altogether and have all its employees buy insurance on the federal exchange, says Richardson."

HT: Steve Bartin

Tierney Wins The Peak Oil Bet

In August of 2005, Houston banking executive Matthew Simmons (one of the world's "leading experts" on the topic of peak oil, although not very good at predicting oil prices) and New York Times columnist John Tierney each put up $5,000 and made a bet about the price of oil in 2010. 

The wager was based on the price of oil in 2010, specifically on the average daily price for the entire year, adjusted for inflation into 2005 dollars. If the inflation-adjusted oil price this year is $200 or more per barrel, Mr. Simmons wins $10,000 plus interest, and if the average price this year is less than $200, Tierney wins the bet.   

The bet was made public in Tierney's New York Times column on August 23, 2005 called "The $10,000.00 Question."  Economist Julian Simon's widow put up $2,500 towards Tierney's $5,000 obligation, to honor the tradition of her husband's famous wager with Paul Ehrlich. 

The chart above shows monthly oil prices in 2010 (converted to 2005 dollars), including monthly projections through the end of the year, from the Energy Information Administration.  Now that we're halfway through 2010, it looks pretty certain that average oil prices this year won't even be anywhere close to $100, and will probably average less than $70, far below the $200 price predicted by Simmons.  Unless oil somehow averages more than $330 per barrel for the rest of the year, I think it's pretty safe to assume that Tierney has won the "peak oil bet." 

ASA Staffing Index Level Above Last Year by 26%

American Staffing Association - "During the week of June 21–27, 2010, temporary and contract employment increased 0.05%, maintaining the index at a value of 91.  At a current index value of 91, U.S. staffing employment is 32% higher than the level reported for the first week of the current year and is 26% higher than the same weekly period in 2009 (see top chart above)."

MP: The ASA index level of 91 for temporary and contract employment activity in the fourth week of June is the second week in a row at that level, which is the highest reading in 86 weeks ( since late October 2008, see chart above).   The 26% gain in the index marks the tenth consecutive week of an annual gain above 20% compared to the same week last year, and is also the nineteenth straight week of double-digit gains for temporary employment (starting in mid-February).

The ongoing increases in temporary hiring, measured by both the ASA Staffing Index and the BLS temporary employment levels (nine straight monthly increases that have added almost 400,000 jobs since last September), provides evidence that the demand for temporary and contract employment continues to strengthen, which should hopefully translate into more broad-based, permanent job creation in the second half of this year. 

Down With Gloom and Doom

From Matt Ridley's article "Down with Doom: How the World Keeps Defying the Predictions of Pessimists":

"When I was a student, in the 1970s, the world was coming to an end. The adults told me so. They said the population explosion was unstoppable, mass famine was imminent, a cancer epidemic caused by chemicals in the environment was beginning, the Sahara desert was advancing by a mile a year, the ice age was retuning, oil was running out, air pollution was choking us and nuclear winter would finish us off. There did not seem to be much point in planning for the future.

By the time I was 21 years old I realized that nobody had ever said anything optimistic to me - in a lecture, a television program or even a conversation in a bar - about the future of the planet and its people, at least not that I could recall. Doom was certain.

The next two decades were just as bad: acid rain was going to devastate forests, the loss of the ozone layer was going to fry us, gender-bending chemicals were going to decimate sperm counts, swine flu, bird flu and Ebola virus were going to wipe us all out. In 1992, the United Nations Earth Summit in Rio de Janeiro opened its agenda for the twenty-first century with the words `Humanity stands at a defining moment in history. We are confronted with a perpetuation of disparities between and within nations, a worsening of poverty, hunger, ill health and illiteracy, and the continuing deterioration of the ecosystems on which we depend for our well-being.'

By then I had begun to notice that this terrible future was not all that bad. In fact every single one of the dooms I had been threatened with had proved either false or exaggerated. The population explosion was slowing down, famine had largely been conquered, India was exporting food, cancer rates were falling not rising, the Sahel was greening, the climate was warming, oil was abundant, air pollution was falling fast, nuclear disarmament was proceeding apace, forests were thriving, sperm counts had not fallen. And above all, prosperity and freedom were advancing at the expense of poverty and tyranny.

I began to pay attention and a few years ago I started to research a book on the subject. I was astounded by what I discovered. Global per capita income, corrected for inflation, had trebled in my lifetime, life expectancy had increased by one third, child mortality had fallen by two-thirds, the population growth rate had halved. More people had got out of poverty than in all of human history before. When I was born, 36% of Americans had air conditioning. Today 79% of Americans below the poverty line had air conditioning. The emissions of pollutants from a car were down by 98%. The time you had to work on the average wage to buy an hour of artificial light to read by was down from 8 seconds to half a second.

Not only are human beings wealthier, they are also healthier, wiser, happier, more tolerant, less violent, more equal. Check it out - the data are clear. Yet if anything the pessimists had only grown more certain, shrill and apocalyptic."

HT: Coyote Blog

Quotes of the Day: Consumer Sovereignty

1. “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

~Sam Walton

2. “It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages.”

~Henry Ford

3. "Consumers are the kings and queens of the market economy, and ultimately they reign supreme over corporations and their employees. In a market economy, it is consumers, not businesses, who ultimately make all of the decisions. When they vote in the marketplace with their dollars, consumers decide which products, businesses, and industries survive—and which ones fail. It is therefore consumers who indirectly but ultimately make the hiring and firing decisions, not corporations. After all, corporations can make no money, hire no people, and pay no taxes unless somebody, sooner or later, buys their products." 

~Mark Perry

Markets in Everything: No-Cash Restaurants

NEW YORK -- At the Greenwich Village restaurant Commerce, cash is off the menu.  In the latest encroachment of credit and debit cards onto the greenback's turf, the high-end New York City restaurant said goodbye to dollars and cents this week. The message to diners: Tip in cash if you wish, but otherwise, your money is no good here.  New York magazine ridiculed the restaurant, saying it should rename itself "e-Commerce."

HT: E. Frank Stephenson

Tuesday, July 06, 2010

Apple iPhone: Designed in U.S., Assembled in China

Turn over your iPhone and you'll see that it's "assembled in China." But that doesn’t mean that most of the profits or revenue go there. In fact, only about $6.54 (a little more than than 1%) of the full $600 retail price of an iPhone goes to China and more than 60% goes directly to Apple and other American companies and then indirectly to American workers (see chart above), according to a recent "teardown report" by iSuppli that was featured in a New York Times article yesterday

If you follow the supply chain for the Apple iPhone 4, you'll find that it was: 
"...designed by Apple engineers in the United States, sourced with high-tech components from around the world and assembled in China. Shipped back to the United States, the iPhone is priced at $600, though the cost to consumers is less, subsidized by AT&T in exchange for service contracts.

“China makes very little money on these things,” said Jason Dedrick, a professor at Syracuse University and an author of several studies of Apple’s supply chain. Much of the value in high-end products is captured at the beginning and end of the process, by the brand and the distributors and retailers. According to the latest teardown report compiled by iSuppli, a market research firm in El Segundo, Calif., the bulk of what Apple pays for the iPhone 4’s parts goes to its chip suppliers, like Samsung and Broadcom, which supply crucial components, like processors and the device’s flash-memory chip. The total bill of materials on a $600 iPhone — the supplies that go into final assembly — is $187.50, according to iSuppli (see chart above).

The least expensive part of the process is manufacturing and assembly. And that often takes place here in southern China, where workers are paid less than a dollar an hour to solder, assemble and package products for the world’s best-known brands.
MP: There are several important points here:

1. We often assume that "assembled in China" means that 100% of the product's content and value is produced or "captured" in China, when in this case only 1% of the iPhone's value is produced by China, and more than 60% of the iPhone's retail value is produced by American engineers, designers, and other IT professionals at Apple, and also at other U.S. companies like Intel and Texas Instruments that provide some of the components.  

2. Assuming the U.S. government counts an iPhone as a $600 import from China (or some lower wholesale value) and increases the trade deficit with China by $600 - even though China contributes only about 1% to the final value - our $227 billion trade deficit with China could be significantly overstated.      

3. The article also points out that labor costs are starting to rise in China's "dominant electronics manufacturing center in Shenzhen toward lower-cost regions farther west, even deep in China’s mountainous interior."  In other words, China's workers are receiving significant benefits from globalization and trade with the United States - "buy an iPhone in the U.S. and you're helping a worker China get higher wages or a bonus."  I thought trade, globalization and capitalism were supposed to produce bad outcomes for workers, who get exploited by greedy employers?

4. At least in the case of the iPhone, a strengthening Chinese currency or rising inflation or wages in China wouldn't have much effect on the retail price here, since the cost of assembly is so insignificant to start with - $6.54 per $600 unit.  Further, production will shift towards lower-cost regions of China as the article mentions, or production will shift out of China to Vietnam and other markets with lower wages.

5. To paraphrase what economist Hal Varian wrote in 2007 about the iPod:        

"The real value of the iPhone doesn't lie in its parts or even in putting those parts together. The bulk of the iPhone's value is in the conception and design of the iPhone. That is why Apple gets $360 for each of these iPhones it sells, which is by far the largest piece of value added in the entire supply chain.  Those clever folks at Apple figured out how to combine hundreds of mostly generic parts into a valuable product. They may not make the iPhone, but they created it. In the end, that's what really matters."

This is what the NY Times meant when it said that "Much of the value in high-end products is captured at the beginning and end of the process," in this case by Apple and its distributors and retailers.

HT: Colin Grabow for the NY Times article link. 

Stamp Gouging? Stamp Scalping?

WASHINGTON (AP) -- "Buy those Forever stamps now. The cost of mailing a letter is going up again.  Fighting to survive a deepening financial crisis, the Postal Service said Tuesday it wants to increase the price of first-class stamps by 2 cents -- to 46 cents -- starting in January. Other postage costs would rise as well.  The agency's persisting problem: ever-declining mail volume as people and businesses shift to the Internet and the declining economy reduces advertising mail."

MP: Over the last 90+ years, the average retail price of gasoline has increased about 11.7 times, from 25.5 cents per gallon in 1919 to a projected $2.98 per gallon in 2011, according to annual gas price data from the EIA.  That's slightly less than the projected 12.9 time increase in the Consumer Price Index from 1919 to 2011 (see EIA data), meaning that the real price of gas has fallen over this period.  Over the same period, the price of a first-class stamp in the U.S. has increased 23X, from 2 cents in 1919 to 46 cents in 2011 starting next year if the rate increase is approved (historical stamp price data available here).  That means that first-class stamps have gone up in price at about twice the rate of both gasoline prices and overall consumer prices in general. 

The chart above compares stamp prices, retail gas prices and the CPI using an index that is equal to 100 in 1919 for all three series, and includes the CPI index from 1919-2011, also equal to 100 in 1919. If stamp prices had increased over time at "only" the rate of gas prices, a first-class stamp would only cost only about 24 cents today instead of 44-46 cents. If stamp prices had increased at the same rate as consumer prices in general, stamps today would cost about 26 cents.

Update: A comparison of stamp prices to a CPI services index (as Tim Worstall suggests) shows that first-class stamps have increased in price by 14.67 times since 1956 while the CPI for transportation services has increased by 11.2 times over the same period.  

ISM Business Activity Index: Expansion for 7th Mo.

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

ISM's Non-Manufacturing Business Activity Index in June registered 58.1 percent, a decrease of 3 percentage points when compared to the 61.1 percent registered in May (see chart above). Fourteen industries reported increased business activity, and two industries reported decreased activity for the month of June. Two industries reported no change from May. Comments from respondents include: "Promotions and sales activity from months ago starting to pay off" and "Increasing demand."
MP: The ISM Business Activity Index for non-manufacturing industries has now been in expansion (index above 50) in 10 out of the last 11 months, and for 7 straight months, both for the first time since 2007, before the recession started.  The ISM Business Activity Index has now been above 58 for four consecutive months for the first time since early 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 (NMI) started in January 2008, and that reading also signals expansion in June at 53.8 (above 50).   Brian Wesbury points out that the ISM Business Activity Index is more closely related to real GDP growth than the overall NMI.

The Two Americas: Public vs. Private Workers

"Even using all the standard controls—race and gender, full- or part-time work, firm size, marital status, region, residence in a city or suburb, and more—the federal wage premium stubbornly hovers around 12%, meaning private employees must work 13½ months to earn what comparable federal workers make in 12.

If the overall generosity of federal benefits matches that of federal salaries (which seems quite likely), total compensation for federal workers may easily exceed $14,000 per year more than an otherwise similar private employee.

A federal pay premium is unfair both to private workers, who receive less than their government peers, and to taxpayers who must cover the difference. Given our 2.7 million-strong federal work force, the government effectively overbills Americans by almost $40 billion every year just on labor costs."

~AEI's Andrew Biggs and Jason Richwine (Heritage) in today's WSJ

Monday, July 05, 2010

Why Is This Simple Grammar Rule SO Difficult?

I've started keeping a collection of writers (blog commentors, etc.) who misuse the word "it's" (contraction for "it is"), instead of its (possessive), here are seven examples from just the last several weeks:

1. Shale gas has it's skeptics: they're hesitant about it's prospects based on economics and environmental factors. I don't work in the shale gas industry and therefore don't feel qualified to forecast it's long-term prospect.

2. If oil was so rare in the US, then why is 95% of it's land and water off limits to drilling?

3. My point is that the OECD index uses stock market levels as an input to derive it's levels.

4. Tithing has lost it's promise

5. I suspect my laptop is having trouble keeping up because of it’s GB’s and MB’s.

6. And while you’re at it, do the same with “Price Theory and It’s Applications”

7. I despise Walmart, not for it's anti-union stance, but for it's overall philosophy and what it's done to it's supply base. 

Maybe I'm just a complete supercilious grammar snob, but why do SO many seemingly intelligent people have SO much trouble with a basic grammar rule that is SO simple?  If you didn't learn about this rule in "grammar school," perhaps a simple five-minute remedial review is in order, you can start here

Dems Control House: From 62% to 46% in 46 Days

The Intrade odds for the Democrats to maintain control of the House of Representatives after the November elections have been trading below 50% for the last week, and the odds have fallen from 62% on May 21 to 46% today. 

U.S. Motor Vehicle Export Milestones

1. General Motors' first-half of the year sales in China, the world's biggest auto market, exceeded sales in its home U.S. market for the first time.

2. After 15 years of building cars and SUVs in Spartanburg, South Carolina, BMW has now shipped over one million cars to overseas markets. That's nearly two-thirds of all of the production from the plant.

Update: Unfortunately, President Obama doesn't seem to fully understand yet the benefits of free trade (or appreciate the fact that 95% of the world's consumers are in export markets outside the U.S.?), and has failed to put the Colombia Free Trade Agreement (signed in 2006 by President Bush) up for a vote in Congress, despite claiming that he supports its "rapid ratification," despite this recent June 2 letter from 39 members of Congress (including 20 Democrats) urging Obama to sign the Colombia FTA, and despite this joint letter in 2008 from GM, Ford and Chrysler supporting Congressional approval of the Colombia FTA (along with more than 1,200 other U.S. companies, business organizations, farm and ranch groups, and chambers of commerce that also support the Colombia FTA).   

Sunday, July 04, 2010

Lady Liberty Fireworks

Fourth of July 2010 Facts from the Census Bureau (including the fact that we imported $209 million worth of fireworks from China last year, and $2.5 million worth of U.S. flags from China). 

Wall Street Journal (2007): "Nearly all the celebratory explosions set off by Americans -- from the lowly New Year's firecracker to today's mighty Fourth of July mortar -- originate in Liuyang, a county nestled into the red hills and bamboo forests of Hunan, China."

Saturday, July 03, 2010

As Share of Income, Americans Have the Cheapest Food in History and Cheapest Food on the Planet

The USDA recently updated its data on "Food expenditures as a share of disposable personal income," and reported that in 2009, Americans spent 9.47% of their disposable income on food (5.55% on food at home and 3.93% on food away from home).  The share of income spent on food last year was just slightly higher than the 9.42% in 2008, which is the all-time record low (see top chart above).  

As just one example of many that explain why Americans have the cheapest foods in history (as a share of income), the bottom chart above shows the inflation-adjusted wholesale price of milk back to 1890.  The current wholesale price of milk, about $15 per hundred weight (cwt), is about half the price of 25 years ago, and about one-third the price of 50 years ago.     

And compared to other countries, there's no other place on the planet that has cheaper food than the U.S. (2008 data here). The 5.5% of disposable income that Americans spend on food at home is less than half the amount of income spent by Germans (11.4%), the French (13.6%), the Italians (14.4%), and less than one-third the amount of income spent by consumers in South Africa (20.1%), Mexico (24.1%), and Turkey (24.5%), which is about what Americans spent DURING THE GREAT DEPRESSION, and far below what consumers spend in Kenya (45.9%) and Pakistan (45.6%). 

More proof that just being alive today in America, you've already "won the lottery of life."

Single Most Important Economic Issue of Our Time

"The landscape of capitalism may seem solid and settled and ready for seizure, but capitalism is really a mindscape.  Volatile and shifting ideas, and the human beings behind them-- not heavy and entrenched establishments -- are the source of our nation’s wealth. There is no bureaucratic net or tax web that can catch the fleeting thoughts of the greatest entrepreneurs of our past. Or future.

Wealth is valuable only to the extent that others think it will be valuable in the future, and that depends on running the fortune for the needs of the customers rather than for the interests of the owners. Its worth will collapse overnight if the market believes the company is chiefly serving its owner, rather than the owner serving it, or that it is being run chiefly for the managers rather than for the people who buy its wares. Look at the recent BP debacle and see for yourself.
The wealth of America isn't an inventory of goods; it's an organic, living entity, a fragile, pulsing fabric of ideas, expectations, loyalties, moral commitments, visions, and people. To vivisect it for redistribution would eventually kill it. As Mitterrand's French technocrats found early in the 1980s, the proud new socialist owners of complex systems of wealth soon learn they are administering an industrial corpse rather than a growing corporation.

That is why the single most important economic issue of our time – and one that impacts the poor and middle class alike – will be how we treat the very rich among us.

If the majority of Americans smear, harass, overtax, and over regulate this minority of wealth creators, our politicians will be shocked and horrified to discover how swiftly the physical tokens of the means of production collapse into so much corroded wire, eroding concrete, and scrap metal. They will be amazed at how quickly the wealth of America is either destroyed, or flees to other countries."

~Ziad K. Abdelnour, President & CEO Blackhawk Partners, from his essay "Why We Need the Rich: A Message to Americans – and Our Leaders in Washington DC – On Wealth Creation by a Wealth Creator."

Friday, July 02, 2010

June: 6th Double-Digit Increase in Car Sales

Auto sales increased in June by 14.4% compared to June last year, marking the sixth straight month of a double-digit percentage gain.

From the Detroit News, "All major automakers posted sales gains last month -- sales were up at 11.9% at GM, 13.4% at Ford and 35.4% at Chrysler -- and most also held their market share steady, with a few exceptions."

Also, as I reported yesterday, rail shipments of motor vehicles and equipment were up by 55.2 percent last week compared to the same month last year. 

7 Reasons the S&P Is Going to 1500

From yesterday's Wall Street Journal, by James Altucher:

"The S&P 500 may be headed downward right now, but here are seven reasons to believe it will go up. Way up."

Read the the whole article here.

More Evidence for Optimism Than For Pessimism

From The New Republic, an article by economist Stephen Rose (author of "Rebound: Why America Will Emerge Stronger From the Financial Crisis") titled "The Morning is Coming: Four Reasons Why the Economy Will Roar Back to Life":

"Our open economy encourages risk tasking; just ask the people behind the formation of 600,000 new businesses each year and the nine million who are self-employed. Because of this, we have a positive inflow of scientists and entrepreneurs—approximately one-quarter of the founders of Silicon Valley startups were non-Americans. And we have a great infrastructure for growth: an educated work force; many of the best universities in the world, which attract lots of foreign talent; access to capital; a good legal system; and an open society that encourages change. Europeans understand that Microsoft, Cisco, Apple, Intel, and the whole Internet revolution could not have started in Europe because businesspeople there are more risk averse and reluctant to build new relationships. And we have a thriving middle class that is ready to move, change jobs, and try new products.

If you look at the American capitalism since World War II, there are ample grounds for optimism. The U.S. economy has experienced almost continuous growth, punctuated by infrequent recessions, from which we have emerged stronger than ever.

Despite the green shoots, and the history of America quickly rebounding from other recessions since 1945, unexpected events could still slow the recovery. But I think the weight of evidence is on the side of optimism rather than pessimism."

Read the whole article here.

Wal-Mart Deserves the 2010 Nobel Peace Prize

From a 2008 NPR report "The Supermarket Revolution Moves Into Honduras":

"If somebody says "developing-world food market," what comes to mind? Maybe a street filled with fruit, vegetable and meat stands, like one in Tegucigalpa, the capital of Honduras. But another kind of market is taking over in Honduras: the supermarket.  Paiz, one of two supermarket chains in Honduras owned by Wal-Mart, is as bright and clean as any in the U.S. The number of Paiz stores is growing fast.

Supermarket sales in Honduras have been increasing by about 20 percent a year. Luis Alfonso Andino, who's in charge of vegetable shipments at one Paiz store in Tegucigalpa, says the growth is because customers know the food from the supermarkets won't make them sick.

High in the hills, near the town of Lepaterique, Vicente Sanchez ticks off the crops that his farmers cooperative grows: carrots, lettuce, cauliflower, cilantro. They all go straight to Wal-Mart. Sanchez's cooperative signed a deal with the chain, with the help of a Swiss aid organization called Swisscontact.   "Whatever we plant, we know that it's already sold before we plant it," he says. "Before, we'd plant things without knowing whether we had a buyer, and we used to lose out."

Edward Bresnyan, an agricultural economist at the World Bank office in Honduras, says the deals between farmers and supermarkets help fuel the economy. That translates to better roads and cell phones, so that farmers can find out where they can get the best prices.

For the farmers in Lepaterique, it's working pretty well so far. Some of them arrived at the Wal-Mart supply center in the outskirts of Tegucigalpa driving a pickup truck loaded with broccoli, green beans and carrots. Wal-Mart manager Gabriel Chiriboga looked pleased. Within 24 hours, shoppers will see those vegetables on supermarket shelves. And some of the money that they spend will flow back to the small — but well-connected — village."

MP: According to a recent fact sheet from Wal-Mart, it now operates 53 retail stores in Honduras, including seven Paiz supermarkets, and it employs more than 2,500 associates.  Wal-Mart has also been responsible for introducing  a "wide range of recycling, energy preservation and residual water treatment programs" in Honduras. 

Contrary to all of the criticism from groups like "Wake-Up Wal-Mart" that Wal-Mart destroys local businesses and depresses local communities with low wages and sub-standard benefits, violates labor laws and safety standards, engages in gender discrimination, etc., much of the evidence seems exactly the opposite:

In Honduras, Wal-Mart has helped stimulate local farmers and local communities, helped increase safety standards for food, created thousand of good-paying jobs, helped improve the distribution infrastructure with better roads, introduced environmentally-friendly practices like recycling and energy conservation, etc. 

Bottom Line: For all of its efforts to raise the standard of living in countries like Honduras, and help to lift millions of people out of poverty, I nominate Wal-Mart for the 2010 Nobel Peace Prize.

HT: C. August